Pension Spiking FAQ's


SB 104 (2017 Regular Session Kentucky General Assembly) 

Frequently Asked Questions

 

How will SB 104 impact my benefit if I choose to opt into Tier 3? 

KRS is examining SB 104 to determine requirements for administration for members interested in changing retirement tiers. Tier 1 exists for members who began participating before September 1, 2008.  Tier 2 exists for members who began participating on or after September 1, 2008 through December 31, 2013.  Tier 3 (hybrid cash balance plan) exists for members who began participating on or after January 1, 2014. SB 104 requires a favorable Private Letter Ruling from the IRS. If the IRS denies the request for a Private Letter Ruling, the opt in provision of SB 104 will be void and not available as a choice for members.  KRS cannot provide estimate calculations for Tier 3 opting until a favorable Private Letter Ruling is received.  

 

How long will it take for a Private Letter Ruling to be given?

The timeframe for this may vary, but KRS expects it to take at least 12 – 24 months. KRS will provide notice to its members on the website when a ruling is received from the IRS.

 

What changes to pension spiking were made?

​SB 104 creates new pension spiking rules for members retiring on or after 1/1/2018.  While only considering creditable compensation earned on or after 7/1/2017, the new law reviews the last 5 fiscal years of employment to determine if one or more spikes occurred.  An increase in creditable compensation greater than 10% when compared to the prior fiscal year’s creditable compensation will not be used when calculating the member’s retirement benefit.  KRS will refund all employee contributions and interest attributable to the reduction in creditable compensation to the employer for disbursement to the member. KRS will retain the employer contributions as required by this provision.

 

If KRS does not receive a favorable Private Letter Ruling allowing members to opt into Tier 3, do the changes in 

pension spiking listed in SB 104 still take effect?

Yes, the changes concerning pension spiking will remain effective regardless of the outcome of the Private Letter Ruling.

   

Are there exemptions to what is considered a pension spike?

Yes, fiscal years prior to 7/1/2017 will be exempt from reduction.  Additional exemptions are as follows: 
 
a)      An increase caused by a bona fide promotion or career advancement;
b)      An increase caused by a lump sum payout from compensatory time at termination only;
c)      An increase caused by a lump sum payout for alternate sick leave payments;
d)      Increases in years where the employee was on leave without pay in the prior fiscal year;
e)      Increases due to overtime work and pay required by a state or federal grant, grant pass-through or similar program; and
f)       Increases due to overtime work and pay required by a federal or state-declared emergency. The employer will have to report and certify any overtime due to a federal or state-declared emergency. KRS will not make this determination.​

 

Is there any impact to current pension spiking provisions in statute?

SB 104 clarifies that existing pension spiking calculations will continue to apply for employees retiring through 6/30/2017.  In those cases, it is the employer that is required to pay for the spike and there is no change to the employee’s creditable compensation. 

 

I am a Tier 3 member.  Does pension spiking apply to me?

No, SB 104 specifically exempts participants in Tier 3 from pension spiking provisions.

 

I am expecting a substantial payout of comp time when I retire.  Will that be considered a pension spike?

No, lump sum payments for comp time at termination are listed in SB 104 as exempt from pension spiking.

 

My employer pays me for a percentage of my sick leave when I retire.  Will that be considered a pension spike?

No, lump sum payments for alternate sick leave are listed in SB 104 as exempt from pension spiking.

 

If I work for multiple participating employers, can this cause a pension spike?

Yes, unless one of the identified exemptions is applicable.

 

Part of my final compensation was earned with KERS and part with TRS of Kentucky.  Will you consider the creditable 

compensation I contributed to TRS of Kentucky when determining if a pension spike exists?

No, only creditable compensation from KERS, CERS, and SPRS are considered.

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