Skip to main navigation Skip to main content
Ky.gov

Benefit Calculation

​​The three systems operated by KPPA are qualified defined benefit plans. A defined benefit plan pays benefits based on a formula.

Formula
Final Compensation * Benefit Factor * Years of Service = 
         Annual Benefit

If there is an early retirement penalty, it will also be used in the formula.

Final Compensation

For Tier 1 members, final compensation is the 5-High or 3-High fiscal years with the highest average monthly rate. Final compensation is determined by dividing the total salary earned (5-High or 3-High) by the total months worked, then multiplying by twelve (12) to annualize. 

Nonhazardous retirement benefits are based upon 5-High Final Compensation. When Final Compensation is based on the 5-High, it must include at least 48 months and a minimum of five fiscal years. The years used do not have to be full (12 month) years. 

Hazardous retirement benefits are based upon 3-High Final Compensation. When Final Compensation is based on the 3-High, it must include at least 24 months and a minimum of three fiscal years. The years do not have to be full (12-month) years.

Member Pension Spiking

A member's final compensation will be adjusted if pension spiking is detected. A pension spike is when a member who is nearing retirement has their salary increase by more than 10% over the previous year's salary. Read more.

A member's final compensation will be adjusted unless the increase in creditable compensation is due to one of the following exemptions:

  1. Bona Fide promotion or career advancement;
  2. Lump sum payout for compensatory time at termination only;
  3. Lump sum payout for alternate sick leave payments;
  4. Increases in years where the member was on leavewithout pay in the prior fiscal year;
  5. An increase due to overtime work and pay as the result of a state or federal grant, grant pass-through, ora  similar program that requires overtime as a condition or necessity of the employer's receipt of the grant;
  6. An increase due to overtime work and pay required by a federal, state, or local government declared emergency; or
  7. The first 100 hours of mandatory overtime in a fiscal year.

Benefit Factor

Tier One Benefit factors are set by statute and vary depending upon the type of service, participation date, service, and retirement system. 

Nonhazardous Member Benefit Factors

KERS:

  • 1.97% - Member does not have 13 months credit for January 1, 1998 - January 1, 1999 

  • 2.00% - Member has 13 months credit for January 1, 1998 - January 1, 1999

CERS:

  • 2.20% - Member begins participating prior to August 1, 2004

  • 2.00% - Member begins participating on or after August 1, 2004

Hazardous Member Benefit Factors

Only CERS and KERS members in an approved hazardous position are eligible.

  • KERS: 2.49% 

  • CERS: 2.50% 

  • SPRS: 2.50% 

Years of Service

The years of service used to calculate retirement benefits include current service, prior service, purchased service, and sick leave service if the member's employer participates in an approved sick leave program. 

  • Current Service - Current service is earned as a contributing member after the establishment of the retirement system. For each month an employer reports wages and contributions for regular full-time employment, a member earns one month of service credit. 

  • Prior Service - Service earned before July 1, 1956 in KERS and July 1, 1958 in CERS and SPRS. There is no cost for this service. A member must have at least 12 months and worked at least 100 hours per month of current service in the same retirement system. 

  • Purchased Service  - Service a participating member may purchase to increase service credit. 

  • Sick Leave Credit  - Sick leave service credit for Tier 1 members counts toward retirement eligibility and health insurance benefits.

What do I Pay and What Does My Employer Contribute? 

Tier 1 employees contribute a pre-tax percent of their creditable compensation as set by state law: nonhazardous employees pay 5% and hazardous employees pay 8%. All employee contributions are deposited to individual members accounts.

Recommended employer contribution rates are determined by KPPA's independent actuary based on data in the annual actuarial valuation. The Boards of Trustees adopt employer contribution rates necessary for the actuarial soundness of the systems governed by the respective boards as required by state law. Employer contributions are used to fund benefits and to fund KPPA expenses. See the current Employer Contribution Rates. 

Am I Eligible for a Refund of My Account if I Quit My Job?

Upon termination of employment, a member has three options in regard to their retirement account: (1) retire if eligible; (2) leave the contributions in their account until eligible to retire; or (3) take a refund of their account balance. Learn more on our Refund of Contributions page.

Connect With Us