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Benefit Calculation

What is the Hybrid Cash Balance Plan?

A Cash Balance Plan is known as a hybrid plan because it has characteristics of both a defined benefit and defined contribution plan. A Cash Balance Plan resembles a defined contribution plan because it determines the value of benefits for each participant based on individual accounts. However, the assets of the plan remain in a single investment pool like a traditional defined benefit plan.

Monthly Life annuity formula
Accumulated Account Balance \ Actuarial Factor = Monthly Life Annuity

Years of Service

 While years of service credit are not a factor in calculating a Tier 3 member's retirement benefit, the service is used to determine retirement eligibility

Tier 3 members may be eligible to make 6 different types of service purchases.

Determination of Benefits

Four elements compose a member's Accumulated Account Balance:

Accumulated Account Balance  

Components of the accumulated account balance
Member Contributions + Employer Pay Credits + Base Interest + Upside Sharing Interest


1. Member Contributions

A set percentage of the member's creditable compensation is contributed to the Cash Balance plan each month:

Nonhazardous Members
5% of their creditable compensation
Hazardous Members
8% of their creditable compensation
An additional 1% is contributed by all Tier 3 members to the health insurance fund. The additional 1% is not credited to the individual account and is not refundable.

 

2. Employer Pay Credits

The Employer Contribution Rate is recommended by the KRS Board of Trustees each year based on actuarial valuation. The employer pays a set percentage of the member's creditable compensation each month:

Nonhazardous Members
4% of their creditable compensation
Hazardous Members
7.5% of their creditable compensation
Employer pay credits are deposited to the member's individual accounts and represent a portion of the employer contribution.

 

3. Base Interest

Your member contributions and employer pay credits earn a base interest of 4% annually. Interest is credited to your account on June 30, based on your account balance from the preceding June 30.


New members are not awarded interest credit the first year they participate, as there is no prior year balance.


 4. Upside Sharing Interest

Upside sharing interest is the additional interest credit that may be applied to a Tier 3 account. IT IS NOT GUARANTEED. The following conditions must be met before Upside Sharing Interest is credited to an account:

  • The system's Geometric Average Net Investment Return (GANIR) for the last five (5) years must exceed 4%
  • The member must have been active and participating in the fiscal year

If the GANIR exceeds 4%, the member's account will be credited with 75% of the amount of return over 4%. It is applied to the account balance as of June 30 of the prior fiscal year.

Example of Upside Sharing Interest
InstructionsFactors
Assumed Geometric Average Net Investment Return:7.5%
Minus Base Interest:- (4.0%)
Amount of Return in Excess of the Base Interest:3.5%
Multiplied by 75%:75%
UPSIDE SHARING INTEREST CREDIT =2.63%
Add Base Interest:+4.0%
TOTAL INTEREST PAID:6.63%
Upside Sharing Interest FY 2019
SystemBaseUpside SharingTotal
CERS Hazardous4.00%1.34%5.34%
CERS Nonhazardous4.00%1.13%5.13%
KERS Hazardous4.00%1.21%5.21%
KERS Nonhazardous4.00%0.58%4.58%
SPRS Hazardous4.00%0.79%4.79%

Actuarial Factors

Your accumulated account balance is divided by an actuarial factor to calculate your monthly life annuity option. Your age at retirement and type of service (hazardous or nonhazardous) determine the actuarial factor. At retirement, the member is eligible for a monthly annuity until death. 

Experience studies are performed by the Systems' independent actuary at least every five years to compare each plan's actual experience to what had been expected (the assumptions). The most recent study was  completed in April 2019. Based on that study, actuarial factors were adjusted effective January 1, 2020. Click here to view actuarial factors prior to January 1, 2020. 

To calculate your Tier 3 benefits using the current actuarial factors listed below, visit MYRETIREMENT.KY.GOV

Actuarial Factors Effective January 1, 2020 for Nonhazardous Members
Age at RetirementActuarial Factor
43203.182020
44201.601850
45199.945982
46198.226985
47196.446939
48194.610459
49192.722340
50 190.791488
51188.829604
52186.783399
53184.650636
54182.426379
55180.106856
56177.687428
57175.163644
58172.542464
59169.925609
60167.346525
61164.764198
62162.142797
63159.451715
64156.665325
65153.762907
66150.728886
67147.552258
68144.226735
69140.750536
70137.125678
71133.358503
72129.458446
73125.438014
74121.312562
75117.098779
76112.815417
77108.482166
78104.119047
7999.746061
8095.382974
Actuarial Factors Effective January 1, 2020 for Hazardous Members
Age at RetirementActuarial Factor
43200.709276
44199.022455
45197.256200
46195.424407
47193.528832
48191.574284
49189.565335
50187.509206
51185.416934
52183.239644
53180.975153
54178.618594
55176.167668
56173.617409
57170.963698
58168.224667
59165.545982
60162.899727
61160.244237
62157.543528
63154.767311
64151.890423
65148.893196
66145.761198
67142.484927
68139.059905
69135.486120
70131.767698
71127.912922
72123.933232
73119.843128
74115.659498
75111.400832
76107.087137
77102.739047

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