SERVICE PURCHASE AND PAYMENT OPTION FACTOR CHANGES: EFFECTIVE JANUARY 1, 2020
If you are considering retiring in the near future, or if you are interested in purchasing eligible service credit, we encourage you to visit the Member Self Service page of our website to calculate your own retirement estimates and service purchase costs to see how these changes might affect you.
After you have reviewed your estimates and purchases on Member Self Service, you may contact KRS toll free at 1-800-928-4646 to speak with a counselor about initiating retirement or making a request to purchase service credit.
WHAT IS AN EXPERIENCE STUDY?
An "experience study" is a comparison of a retirement plan's experience (what actually happened) to what had been actuarially assumed (expected) to occur.
Kentucky Revised Statute 61.670(1)(c) says that an experience study must be conducted for KRS every five years to help ensure the underlying economic and demographic assumptions (such as expected payroll growth, investment returns, and retiree life expectancy) are still accurate.
Our independent actuary, GRS Retirement Consulting, recently completed an experience study of KRS that covered the five-year period from July 1, 2013 to June 30, 2018, and presented for Board approval at the Board's April, 2019 meeting.
WHY CHANGE THE FACTORS?
The 2018 experience study was approved by the KRS Board of Trustees and, as a result of changes in the interest rate and retiree mortality assumptions, service purchase and payment option factors need to be adjusted.
Therefore, KRS must make the factor adjustments to accurately reflect the true actuarial cost of service purchases and retirement benefit payment options.
HOW ARE THE FACTORS USED?
Actuarial factors are used in two main ways. First, the factors help determine the amount of retirement benefits to be paid under various retirement benefit payment options, including Tier 3 annuity amounts. Kentucky Revised Statute 61.635 requires all options for receiving a retirement benefit be actuarially equivalent to ensure the various options provide the same level of financial benefit to the member. Depending upon individual circumstances, these factor changes may increase or decrease the benefits payable at the time of retirement. This adjustment will impact payment options for retirement dates on or after January 1, 2020.
Second, actuarial factors are used when calculating the cost of service purchases and Hazardous Conversion Factors. This adjustment will impact purchases made on or after January 1, 2020. Depending upon individual circumstances, these factor changes may increase or decrease the cost to purchase service credit.
CAN I STILL PURCHASE SERVICE CREDIT UNDER THE CURRENT FACTORS?
Yes, until the end of this calendar year. Employees wanting to "lock in" the cost of purchasing service should make a request to the retirement office before December 31, 2019.
PLEASE NOTE: Once KRS calculates the cost of service, if the employee fails to make the purchase by the specified payment due date in the cost estimate, subsequent cost calculations may be at a higher rate. Repayments of previously refunded service and contributions for service that was omitted erroneously to KRS are not subject to this adjustment.
And as always, you may contact KRS toll free at 1-800-928-4646 to speak with a counselor about your retirement account.