Provided below is an overview of purchasing service credit. For more detailed information, please refer to Chapter 3 of the
Summary Plan Description.
Basic Requirements
Most types of service must meet the following minimum requirements to be purchased:
The service must be in a full-time position, in accordance witih Kentucky Revised Statutes (KRS) 61.510 and 78.510.
The service cannot be credited to another defined benefit retirement plan.
The member or the employer must provide verification of employment as required by KPPA.
The member must not already have service credit for the same calendar month.
Most purchase types require a member to be participating and vested in CERS, KERS, or SPRS at the time the purchase is made. To be vested, a member under the age of 65 must have at least 60 months of service credit in the systems operated by KPPA while a member over the age of 65 must have at least 48 months of service credit in the systems operated by KPPA
Estimated Cost to Purchase Service
Members can log in to Self Service to view an estimated cost that uses salary and service information reported by their employer. Members may also use the calculator on the Self Service login page to obtain an estimate based on information they supply.
After generating an estimated cost, members interested in proceeding with a service purchase should contact KPPA to request an official cost calculation. Please note that the required verification for the service purchase type must be filed with KPPA before the cost can be calculated. Members who have previously received an official cost calculation, but did not proceed with making the purchase, may recalculate that cost and initiate the purchase of that service through their Self Service account.
Formula
Higher of Current Rate of Pay / Final Rate of Pay / Final Compensation * Actuarial Factor * Years Purchased
The actuarial factor used to calculate the cost varies based upon the member's age, years of accrued service credit, applicable benefit factor, and final compensation. The factor assumes the earliest retirement date the member may retire with no reduction in benefits. Purchased not calculated under this method include Recontribution of Refunded Service, Hazardous Conversion, and Omitted Service.
Paying for the Purchase
Eligible service credit may be purchased by the following payment methods, provided it falls within the limitation set forth in Section 415 of the Internal Revenue Code. Any combination of these three methods may be used to pay for most service purchases.
A combination of these methods may or may not be used to pay for some service purchases. Members who wish to combine payment methods, or transfer/roll over funds from more than one plan, are advised to contact KPPA in advance.
Lump Sum Payment: Service may be purchased by making a lump sum payment to KPPA. Federal law limits the use of after-tax money to purchase service with a lump sum payment.
Installment Purchase of Service Agreement (IPS): Members may choose to have the cost of service deducted from their paycheck on a before-tax or after-tax basis provided the employer has arranged to make installment deductions with KPPA. To be eligible for payroll deduction, the cost must be at least $1,000. One year of installment payments is allowed for each $1,000 in cost with a maximum of five years to pay off the cost. Interest is compounded annually at the rate set by the CERS and KRS Boards of Trustees.
The before-tax IPS resmbles the after-tax IPS with one major exception: All payroll deductions under the before-tax IPS program are irrevocable once a member has completed the necessary forms. This means a member cannot stop payment on the contract or pay off the remaining balance except upon death or termination of employment.
Rollover or Transfer From a Qualified Plan: The Internal Revenue Code allows CERS, KERS, and SPRS to accept rollovers or, in some cases, trustee-to-trustee transfers from other qualified plans like Section 401(a), Section 401(k), Section 403(b), Section 457, "Rollover" IRA, and Traditional IRA. In order to complete a direct rollover or transfer of funds from another qualified plan to purchase service, the member and the financial institution making the direct rollover or transfer of funds must complete a Form 4170, Direct Transfer/Rollover Acknowledgement.
Types of Service for Purchase
The following is a listing of most service purchase types
Purchase Types without Service Requirements
| Purchase Types without Service Requirements | Verification Required |
Recontribution of Refunded Service A member currently participating in one of the state-administered retirement systems who has taken a refund of retirement contributions for previous employment may regain the service lost by paying the amount of contributions withdrawn plus interest calculated from the time of withdrawal. Note: The member must accrue at least six additional months of service credit in a state- administered retirement system to validate the purchase. A recontribution of refund will not alter the member's participation date.
| Information should be on file at KPPA
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Summer Months A member currently participating in one of the state-administered retirement systems who was contracted by a local school board, university, community action agency, or school for the deaf or blind to work nine, ten, or eleven months may purchase up to three additional months to complete a full year.
| Information should be on file at KPPA
|
Omitted Service
If a member was entitled to service credit but was not reported to KPPA, the member may obtain service by paying the employee contributions on the period of omitted service. If employee contributions are not received within six months of notification by KPPA, a participating employee may obtain the service by paying the employee contributions plus any accumulated interest. Service credit will not be awarded to the member’s account until KPPA has also received the employer contributions.
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Uniformed Services Employment and Reemployment Rights Act (USERRA)
Allows a member to purchase military service in excess of six years if certain conditions are met.
| A copy of your DDForm 214 for each period of active duty.
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Decompression
If a member returns from military leave and does not immediately return to work, the member can purchase up to 90 days between the date of discharge and return to employment. The employer also must pay the employer portion for this period of time.
| A copy of your DDForm 214 for each period of active duty.
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Hazardous Conversion
Members participating in hazardous positions may pay the cost to convert eligible nonhazardous service to hazardous service. The service credit must be in a position that was reported to KPPA under nonhazardous coverage, but has since been approved for hazardous duty coverage by the CERS or KRS Boards of Trustees. The agency where the nonhazardous service was earned must complete a Form 4150, Certification of Employment in a Hazardous Position, in order for the member to convert the service.
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In order to be vested to make a service purchase, a member under the age of 65 must have at least 60 months of service credit while a member over the age of 65 must have at least 48 months of service in the systems operated by KPPA.
Vested Purchase Types
| Vested Purchase Types | Verification Required |
Non-Qualified Service
Members currently participating and who participated prior to August 1, 2002, may purchase up to five years of service once they have 15 years of total service in a state-administered retirement system. At least five of the 15 years required for this purchase type must be in CERS, KERS, or SPRS. The Non-Qualified service may not be used for benefit purposes until the member has accrued 20 years of service, excluding the Non-Qualified service.
| Information should be on file at KPPA.
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National Guard/Reserves
A member may purchase one month of credit for every six months served.
| Most recent Annual Statement of Points.
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Maternity/Authorized Sick Leave Without Pay/FMLA Leave
A member may purchase service credit for official maternity leave without pay, approved sick leave without pay, or approved leave without pay under the Family Medical Leave Act (FMLA) that occurred while working for a participating employer.
| Form 4225 - or - Personnel Forms or a letter from the employer verifying period of leave.
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Seasonal, Temporary, Emergency, Interim or Part-Time
A member may purchase service for time served in a seasonal, temporary, interim, emergency, or part-time position (at least 100 hours per month) that occurred with a participating employer.
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State University Service
A member may purchase service for certain types of employment with Kentucky’s state sponsored universities provided they did not participate in a defined benefit plan during employment, and the position held would have qualified as a regular full-time position had the university been a participating employer. This purchase is limited to the University of Kentucky and the University of Louisville since other state-sponsored universities participate in KERS.
Historical note: From April 1, 2003 until June 20, 2005, Kentucky Revised Statute 61.552(8) provided that university service may be purchased if the member did not participate in either a defined benefit plan or a defined contribution plan. Effective June 20, 2005, the statute was amended to allow the purchase if the university service was covered under a defined contribution plan.
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Approved Educational Leave
A member may purchase service credit for approved educational leave.
| Copy of the education contract and Personnel Forms - or - Letter from employer verifying period of leave.
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Federal Service
A member may purchase service worked as a full-time federal employee provided the member withdrew all funds or did not participate in the Federal Retirement System.
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Out of State Service (Nonhazardous)
A member may purchase up to 10 years of service credit for full-time out-of-state public service. To qualify, the out-of-state service just have been credited in a state or locally administered defined benefit retirement plan, other than one for teachers. The member must provide verification that they received a refund or are not eligible for a retirement benefit from the period of out-of-state service.
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Out of State Service (Hazardous)
A member may purchase up to 10 years of service credit for full-time out-of-state public service if the position would be determined as hazardous duty. To qualify, the out-of-state service must have been credited in a state or locally administered defined benefit retirement plan, other than one for teachers. The member must show that they received a refund or are not eligible for a retirement benefit from the period of out of state service. The member must also submit a copy of the job description for the out-of-state public service.
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Vocational/Technical School Service
A member may purchase service worked in a non-teaching position with a Vocational/Technical School in the state of Kentucky that averages at least 80 hours per month on a calendar or fiscal year basis.
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Community Action Agency
A member may purchase service for regular full-time employment with a Community Action Agency created under Kentucky Revised Statutes 273.405 to 273.453 if that service was not covered by a state-administered retirement system.
| Form 4225 - or - Letter from employer verifying period of service.
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Mental-Health/Mental Retardation Service
A member may purchase service for employment in a regional community mental health and mental retardation services program, organized and operated under the provisions of Kentucky Revised Statutes 210.370 and 210.480 that does not participate in a state- administered retirement system.
| Form 4225 - or - Letter from employer verifying period of service. |
Approved Leave to Work for Work-Related Labor Organization
A member may purchase service credit for periods of approved leave to work for a work-related labor organization provided that the employer approving the leave subsequently participated in CERS.
| Letter from the IRS or U.S. Department of Labor stating that the purchase is allowable under federal restrictions.
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Area Development District/Business Development Corporation
A member may purchase service for employment with an Area Development District (ADD) created pursuant to Kentucky Revised Statute 147A.050 or a business development corporation created pursuant to Kentucky Revised Statutes 155.001 to 155.230 which does not participate in CERS or KERS.
| Letter from the IRS or U.S. Department of Labor stating that the purchase is allowable under federal restrictions.
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Urban–County Government Service
A hazardous member may purchase service credit with an urban-county government. To qualify, the employment must have been considered regular full-time and qualify for hazardous duty coverage under Kentucky Revised Statute 61.592. The member must show that they received a refund or are not eligible for a retirement benefit for the period of urban-county government service.
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Delayed Service
A member may purchase service with an employer that did not participate in CERS or KERS but has since joined. Delayed Service (also referred to as past service) is service worked prior to the date the employer began participating. | |
Active Duty Military A member may purchase all periods of active duty service with a branch of the Armed Forces. This purchase may require an honorable or general discharge from service. | A copy of your DD-Form 214 for each period of active duty |