Summary Plan Description for Active Membership

Transcription

1 Summary Plan Description for Active Membership

2 Ta b l e o f C o n t e n t s Chapter One: KRS Over view... 3 Plan Administration... 3 Your KRS Board O f Trustees... 3 IRS Regulations Per taining to KRS... 4 State Laws and Regulations Per taining to KRS... 4 Plan Funding Employee and Employer Contribution R ate... 5 Tax Treatment of Contributions... 6 Investments And Reviews... 7 Chapter Two: Par ticipation and Account Information... 8 Who Is Required to Par ticipate?... 8 Individual Member Accounts... 8 M inimum Distribution Requirements M ember Responsibilities Accessing Information About Your Benefits Chapter Three: Ser vice Credit Types O f Ser vice Credit Purchasing Ser vice Credit Sick Leave Ser vice Credit M embers Called To Ac tive M ilitar y Ser vice Combining Ser vice With O ther Retirement Plans Chapter Four: Retirement Eligibility & Benefits When Is A Member Eligible To Retire? How Are Retirement Benefits Determined? Retirement Payment Options Tax Treatment O f Benefits Cost O f Living Adjustments For Retirees Effec ts O f Divorce On Retirement Benefits M edical Insurance Benefits $5,000 Death Benefit Chapter Five: Retirement and Reemployment Retirement Procedures Employment Af ter Retirement Chapter Six: Disability And Death Disability Benefits And Procedures D eath Before Retirement D eath Af ter Retirement... 50

3 C h a p t e r O n e : Ke n t u c k y Re t i r e m e n t Sy s t e m s O ve r v i e w P l a n Ad m i n i s t ration The Commonwealth of Kentucky provides retirement benefits for most state and county employees through the Kentucky Retirement Systems ( Systems ). Kentucky Retirement Systems is governed by a nine member Board of Trustees and consists of three separate retirement systems: Kentucky Employees Retirement Systems (KERS) established July 1, 1956 for state employees. County Employees Retirement Systems (CERS) established July 1, 1958 for local government employees and classified school board employees. KRS Overview State Police Retirement Systems (SPRS) established July 1, 1958 for uniformed Kentucky State Police officers. The Board of Trustees who administers the Systems is comprised of two trustees elected by KERS members, two trustees elected by CERS members, one trustee elected by SPRS members, three trustees appointed by the Governor, and the Secretary of the State Personnel Cabinet. One of the trustees appointed by the Governor must be knowledgeable about the impact of pensions on local governments. Elected trustees serve a 4-year term, and may serve no more than five consecutive terms. Yo u r Ke n t u c k y Re t i r e m e n t Sy s t e m s B o a r d O f Tr u s t e e s Patricia R. Ballenger Elected by CERS Members Term Ends: March 31, 2009 Larry C. Conner Appointed by the Governor Term Ends: March 31, 2007 Lynn T. Harpring Appointed by the Governor Term Ends: March 31, 2008 Bobby D. Henson Elected by KERS Members Term Ends: March 31, 2010 Randy J. Overstreet, Chair Elected by SPRS Members Term Ends: March 31, 2007 Susan Smith Horne Elected by KERS Members Term Ends: March 31, 2010 Vince Lang Elected by CERS Members Term Ends: March 31, 2009 Walter J. Pagan, Vice Chair Appointed by the Governor Term Ends: March 31, 2008 Brian J. Crall Secretary, Personnel Cabinet Term Ends: Ex-Officio The Board of Trustees appoints an Executive Director to oversee the administration of the Kentucky Retirement Systems. The current Executive Director is William P. Hanes, Esq. All correspondence to Board Members should be addressed to the Kentucky Retirement Systems, Perimeter Park West, 1260 Louisville Road, Frankfort, KY

4 Chapter One I R S Re g u l a t i o n s Pe r t a i n i n g t o Ke n t u c k y Re t i re m e n t Sys te m s The three systems administered by Kentucky Retirement Systems are qualified public defined benefit plans established under Section 401(a) of the Internal Revenue Code (IRC). A defined benefit plan pays benefits based on a formula; the Systems formula at full retirement is as follows: Final Compensation note X Benefit Factor X Years of Service Credit = Annual Benefit Most individuals are more familiar with a 401K plan, which is a defined contribution plan. A defined contribution plan pays benefits based strictly on contributions and interest earned on those contributions. S t a t e L a w s a n d Re g u l a t i o n s Pe r t a i n i n g t o Ke n t u c k y Re t i re m e n t Sys te m s The three systems administered by the Systems are governed by the following state statutes: SPRS: Kentucky Revised Statutes through KERS: Kentucky Revised Statutes through CERS: Kentucky Revised Statutes through The regulations necessary to carry out the statutes, policies, and procedures covering the Systems are found in Chapter 105 of the Kentucky Administrative Regulations. Copies of the Kentucky Revised Statutes may be available at public libraries. Unofficial copies of the statutes and Kentucky Administrative Regulations can be found on the Kentucky Legislative Research Commission's Web site ( lrc.ky.gov). Legal documents should be addressed to the Executive Director. P l a n Fu n d i n g Funding Sources Kentucky Retirement Systems benefits are funded through three sources: employee contributions deducted from an employee s creditable compensation (see next section), employer contributions paid by each state and county agency participating in the Kentucky Retirement Systems, and return on investments. The employee contribution rate is set by state statute. Employers contribute at the rate determined by the Board of Trustees to be necessary for the actuarial soundness of the Systems as required by Kentucky Revised Statute and For the fiscal year, contribution rates for employees and employers are as follows: 4

5 E m p l oy e e a n d E m p l oy e r C o n t r i b u t i o n Ra t e % o f C r e d i t a b l e C o m p e n s a t i o n Employee Employer KERS Non-Hazardous 5% 7.75% 1 KERS Hazardous 8% 22.00% 1 CERS Non-Hazardous 5% 13.19% CERS Hazardous 8% 28.21% SPRS 8% 25.50% 1 KRS Overview 1 These are the employer contribution rates specified by HB 380, the Executive Branch Budget Bill, which was passed during the 2006 General Assembly. The employer contribution rate recommended by the Board of Trustees and its consulting actuary was 17.13% for KERS non-hazardous employers, 23.32% for KERS hazardous employers, and 42.30% for SPRS employers. Creditable Compensation Creditable compensation consists of all salary, wages, tips and fees, including payments for compensatory time paid to you as a result of services performed for the employer, including time when you are on paid leave. Lump sum bonuses, severance pay or employer-provided payments for purchase of service credit are also included in creditable compensation; however, if these types of payments exceed $1,000 for the fiscal year, then the combined payments will be averaged over your total service in the system in which the bonus was paid. Living allowances, expense reimbursements, and lump-sum payments for unused vacation time are not included in creditable compensation. Lump sum payments for sick leave may be included in your creditable compensation if your agency participates in the Alternate Sick Leave Program. Since 1996, Section 401 (a)(17) of the Internal Revenue Code has limited the amount of creditable compensation upon which employee and employer contributions are paid. Under these guidelines, employee and employer contributions are paid on all creditable compensation 5

6 Chapter One you earn up to the maximum annual limit. Once you meet the maximum annual creditable compensation limit, no contributions are to be reported for the remainder of the fiscal year. Prior to the beginning of each fiscal year, the Kentucky Retirement Systems notifies each participating employer of the annual creditable compensation limits. For fiscal year , the annual creditable compensation limit is $220,000. note If you are paying into a before-tax compensation plan, such as a 401(k) or a 457 plan, the amount contributed to these plans does not reduce your creditable compensation for retirement purposes. Your creditable compensation is determined prior to any deductions to before-tax compensation plans. Deposit of Contributions Employee contributions paid to the Systems are deposited to individual member accounts. Employer contributions are deposited to the Retirement Allowance Account and the Insurance Fund and are used to pay monthly benefits to members and to fund the expenses of the Systems. When an employee retires, his or her individual account balance is transferred to the Retirement Allowance Account. Ta x Tr e a t m e n t O f C o n t r i b u t i o n s Mandatory employee contributions after August 1, 1982, are made on a before-tax basis and are automatically deducted by the employer. This means contributions are withheld from employees gross pay before state and federal taxes or FICA are withheld. All non-mandatory member contributions for service purchases, recontributions of refunds, and contributions for omitted contributions may be made on an after-tax basis subject to federal limits or with before-tax dollars under an installment purchase of service agreement. Payments made with after-tax dollars will not be subject to federal income tax when the benefit is issued, whether through a refund or monthly benefits. In the case of monthly benefits, current Internal Revenue Service regulations provide that the amount of aftertax dollars in the account be recovered by making a portion of each monthly benefit non-taxable. Before-tax contributions do not eliminate taxes on the contributions made, but rather defer tax liability until the benefits are received. 6

7 I n ve s t m e n t s A n d Review s How Are Plan Assets Invested? All funds are invested in accordance with the Kentucky Revised Statutes and the Board of Trustees adopted policies. The Board is governed by the Prudent Person rule and must invest the funds solely in the interests of the members and the beneficiaries of the Systems. What Review Processes Are in Place for Kentucky Retirement Systems? As a fiduciary of plan assets for more than 290,000 members, the Systems is held to a very high standard of public scrutiny. The following reports are completed each year and provide an overview of the annual review processes in place for the retirement plans: KRS Overview An annual audit is conducted to ensure proper accounting procedures. An annual actuarial valuation is performed each year to examine the plan s funding status and to ensure that contribution rates are sufficient to fund benefits. Actuarial studies are conducted every five years to determine if the assumption and funding methods used in the actuarial valuation reasonably reflect the actual experience of the Systems. A Comprehensive Annual Financial Report (CAFR) is completed each year, detailing the financial and actuarial status of Systems. Copies of these reports are available on the Systems web site. 7

8 C h a p t e r Tw o : Pa r t i c i p a t i o n a n d Ac co u n t I n f o r m a t i o n Wh o I s Re q u i re d to Pa r t i c i p a te? When an Agency First Participates When an agency first participates with the Systems, each employee working in a regular full-time position is given the option to elect or reject retirement coverage. After initial agency participation, all new eligible employees must participate in the Systems. Chapter Two If an employee rejects retirement coverage at the time the agency first participates and later wants to join the Systems, he may do so on the first day of the month following election. The employer is not required to pay for any delayed service that the employee would have received had he elected retirement coverage when the agency first participated with the Systems. Any employee who rejected retirement coverage and terminates employment is required to start retirement coverage if re-employed. Employees Hired After an Agency Participates After initial agency participation, all new employees who work in a regular fulltime position must be enrolled in the Systems at the beginning of employment. What Is a Regular Full-Time Position? A regular full-time position is a position that averages 100 or more hours per month over a calendar or fiscal year. For local school boards, a regular full-time position is a permanent full-time, permanent part-time or substitute non certified position where the job duties require the employee to average 80 or more hours of work per month over actual days worked. I n d i v i d u a l M e m b e r Ac co u n t s Account Administration Prior to retirement, an account is maintained for individual employee contributions. The balance in the account cannot be garnished or used for collateral on a loan. Members actively contributing to one of the Systems cannot withdraw funds from their account(s) except upon termination of employment. Confidentiality of Accounts Information in your account is CONFIDENTIAL. Requests for information about your account must be made in writing or in person and should contain your Social Security number, home mailing address, and signature. Account information cannot be provided over the telephone unless the caller provides your Social Security Number and the Personal Identification Number (PIN) assigned to your account. note Account information will be released in response to a lawful subpoena or court order. 8

9 Annual Statement of Account Prior to retirement, an Annual Statement for your account is mailed to you each August. The purpose of the Annual Statement is to provide a snapshot of the retirement benefits, contributions, interest, and service you have accrued through the end of the fiscal year (June 30th). You should always review your Annual Statement carefully to ensure your information is correct. Inquiries concerning your Annual Statement should be made in writing. If you need to obtain a duplicate copy of your Annual Statement, you should complete and submit a Form 2415, Request for Duplicate Annual Statement, to the retirement office. A copy of the Form 2415 can be obtained by contacting the Systems or by downloading it from the Systems web site. Interest on Accounts The interest credited to your account and reported on your Annual Statement is calculated based upon your account balance at the end of the prior fiscal year. The interest paid is set by the Board of Trustees and is currently 2.5%. note The interest credited to your account is typically not related to the amount of benefits you will receive when you retire. Benefits for most retiring members are based on a formula using the member s service and salary. The purpose in crediting interest to member accounts is to provide a modest return to those members who are not eligible for a retirement benefit and choose to take a refund after termination of employment. Participation & Account Information Refund of Account Balance Upon termination of employment, you have three options in regard to your retirement account: (1) retire if eligible, (2) leave the contributions in the Systems until you reach retirement eligibility, or (3) take a refund of your account balance. If you choose to take a refund of your account balance, you will receive your individual retirement contributions plus any accumulated interest. You will not receive a refund of any employer contributions made on your behalf. Payment of your refund can be made directly to you or the funds can be rolled into another qualified retirement plan. If you elect to receive a direct payment, Kentucky Retirement Systems is required to withhold 20% for federal income taxes. The amount withheld is not a penalty tax and will apply towards your federal tax liability for the year in which the refund was issued. Additional taxes due to age or other factors may also apply if you choose to receive a direct payment. In order to process a refund of contributions, you must complete a Form 4525, Request for Refund of Contributions. In addition, a completed Form 2001, Membership Information, must be on file with the Systems. The agency reporting official is also required to submit a completed Form 2020 or Personnel Action Form listing your date of termination. A refund cannot be issued until all three forms are filed with the Systems. 9

10 Since contributions are typically reported to the Systems 2-4 weeks after wages have been paid, the refund process typically takes 6-8 weeks beyond the termination date to process. If you are interested in taking a refund of your account balance, you must contact the Systems to obtain a Form note Additional information on retirement eligibility and benefits is provided in the Retirement Eligibility & Benefits Chapter. M i n i m u m D i s t r i b u t i o n Re q u i re m e n t s Chapter Two Federal tax law requires members who are no longer working for a participating Kentucky Retirement Systems employer to begin drawing benefits or withdraw contributions soon after reaching age 70 ½. If you are age 65 or older, you may wish to begin planning for withdrawal or retirement in order to avoid any applicable penalties. If you are age 70 ½ or older and no longer contributing to one of the Systems, please contact the retirement office immediately for the appropriate forms to apply for retirement or a refund to avoid substantial and recurring federal tax penalties. Federal tax law also requires the beneficiary of an active or retired member to begin receiving benefits or take a refund soon after the member s death. Beneficiaries should contact the retirement office soon after the member s death to begin receiving benefits or take a refund in order to avoid any applicable penalties. M e m b e r Re s p o n s i b i l i t i e s New Employee Upon employment in a regular full-time position, an employee is required to complete a Form 2001, Membership Information and a Form 2035, Beneficiary Designation. No benefit will be paid, including a refund of account, until a completed Form 2001 is received in the Kentucky Retirement Systems office. Valid forms must be on file at the retirement office in Frankfort to be effective. Change of Address It is important to keep your address current with the Systems. Doing so will ensure retirement checks, annual statements, newsletters, and any requested materials are delivered to you on time. If you need to change your address with the Systems, please follow the procedures listed below: 10 Check with the Post Office: Be sure that your correct address is on file at the U.S. Post Office. Each month, Kentucky Retirement Systems updates the address on file for you with the U.S. Post Office through the National Change of Address (NCOA) system. If the correct address is not on file with the Post Office, your address on file at the retirement office may be replaced with an incorrect address, and mail from the Systems may not be forwarded by the Post Office. Complete and File a Form 2040: You should also complete a Form 2040, Change of Address Notification and file it with the Systems. A copy of this form can be sent to your home address by calling the Systems or you can download a copy from the website.

11 Ac ce s s i n g I n f o r m a t i o n Ab o u t Yo u r B e n e f i t s By Telephone Telephone inquiries are handled by the Systems Call Center. The Call Center is staffed with qualified Retirement Counselors who are there to help you obtain services and to answer your questions about the Systems. Counselors may provide specific information about your account over the phone if you provide your Personal Identification Number (PIN) and Social Security Number. If you need to schedule an office appointment to meet with a Systems Retirement Counselor, you should contact the Call Center. Office appointments can be scheduled up to three months in advance. Phone Numbers (502) (inside Franklin County) (outside Franklin County) By Mail All written inquiries should include the member s name, Social Security Number, home mailing address, and signature. If you are requesting an estimate of retirement benefits, please include the retirement dates you are considering. If you are requesting a service purchase calculation, please include the type of purchase and the necessary verification. All written inquiries should be sent to the following address: Participation & Account Information Kentucky Retirement Systems Perimeter Park West 1260 Louisville Road Frankfort, KY Electronic Mail ( ) You may the Systems at krs.mail@kyret.com. is not secure. Therefore, it is recommended that be used for general inquiries only and that the sender not include information of a confidential or personal nature. Examples of information which should not be transmitted by include your Social Security number, date of birth, home address, telephone number, bank account and credit card information, mother s maiden name, medical information, and any information that you would not want a third party to discover. Use the telephone or make written requests for specific information about account information or benefits. On the Web We encourage our members to utilize the information and services available on our website, Most educational materials and forms are available online. You may also generate individual retirement estimates and service purchase cost estimates from our web site. 11

12 C h a p t e r T h r e e : S e r v i ce C r e d i t Ty p e s O f S e r v i ce C r e d i t In a defined benefit plan, a member s service credit is used in part to determine eligibility for retirement and for determining the amount of benefit received upon retirement. For members participating in KERS, CERS, and SPRS, the amount of service credit used to determine retirement eligibility and benefits can include current service, prior service, purchased service, and sick leave service (if the agency participates in a Systems approved sick leave program). Below is a listing of the types of service credit and the effects each type has on retirement eligibility and benefit calculation. Current Service Current service is service earned as a contributing member. For each month in which wages and contributions are reported for regular full-time employment, a member earns one month of service credit. Chapter Three Prior Service Prior service is all service rendered 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 a minimum of 12 months current service in the same system in which he has the prior service in order to use the prior service toward a retirement benefit. Prior service is only credited for months in which the member worked at least one hundred (100) hours in performing his job duties. Purchased Service There are more than 30 types of service a participating member may purchase in order to increase service credit. The requirements for each purchase type are regulated by state statute and the appropriate verification must be filed with the Systems before the purchase cost can be calculated (see the following section in this chapter for more information on service purchases). note 2004 Legislative Change: Members who began participating in the Systems on or after August 1, 2004 cannot use most service purchase types for determining eligibility for early retirement, normal retirement, disability retirement and death benefits. This provision will apply to all service purchases made by the member or employer with the exception of omitted service and recontribution of refunded service. note 2004 Legislative Change: Most service purchases made on or after August 1, 2004 will not be used to determine insurance benefits at retirement. This provision will apply to all service purchases made by the member or employer with the exception of omitted service and recontribution of refunded service. 12

13 Sick Leave Service Most members of KERS and SPRS receive service credit for all unused accumulated sick leave at the time of retirement. Members of CERS may receive service credit for their sick leave at the time of retirement if their employer has adopted a sick leave program with the Retirement Systems. There are two (2) types of sick leave programs that the CERS employer may adopt Standard or Alternate. (See Sick Leave section later in this chapter for more information). P u r c h a s i n g S e r v i ce C r e d i t Basic Requirements Most types of service must meet the following minimum requirements in order to be purchased: The service must be in a fulltime position in accordance with KRS and KRS The service cannot be credited to another defined benefit retirement plan. The member or the employer must provide verification of employment as required by the Systems. Most purchase types require the member to be participating and vested in KERS, CERS, or SPRS at the time the purchase is made. In order to be vested, 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 credit. Service Credit Retirees or members who are not contributing to one of the state administered retirement systems cannot purchase service credit. Retirees who have returned to work and are contributing to a new retirement account cannot purchase service they were eligible to purchase prior to their initial retirement. 13

14 How Is the Service Purchase Cost Calculated? For almost all purchase types, the cost is determined by multiplying the higher of the member s current rate of pay, final rate of pay, or Final Compensation by the actuarial factor by the number of years of service being purchased (see Delayed Contribution Calculation Method). D e l aye d Co n t ri b u t i o n Ca l c u l a t i o n M e t h o d Higher of: Current Rate of Pay -or- Final Rate of Pay -or- X Actuarial Factor X Years to Purchase Final Compensation Chapter Three The actuarial factor used to calculate the cost varies based upon your age, years of accrued service credit, applicable benefit factor, and eligibility for Final Compensation. Purchases not calculated under this method include Recontribution of Refunds taken from the system, Hazardous Conversions, and Omitted Service. Example Jane Doe is a CERS member participating under non-hazardous retirement coverage. Jane is eligible for 5-high Final Compensation, earns an annual salary of $35,000.00, has accrued 15 years of service credit, and is 40 years of age. She is eligible to purchase 5 years of non-qualified service. Her cost to purchase this service is as follows: Current Rate of Pay X Actuarial Factor X Years to Purchase $35, X X 5 Years Jane s Cost to Purchase Service = $26,

15 Listing of Purchase Types Below is a listing of most service purchase types and the information required to verify the period of service. Pu r c h a s e Ty p e s W i t h o u t S e r v i ce R e q u i r e m e n t s Ve r i f i ca t i o n R e q u i r e d 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: Six months of additional service is required to validate the purchase. 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 9, 10, or 11 months may purchase up to three (3) additional months to complete a full year. Omitted Service: If a member was entitled to service credit but was not reported to the Systems, the member may obtain service by paying the employee contributions on the period of omitted service. If employee contributions are not received within 6 months of notification by the Systems, 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 the Systems has also received the employer contributions. Hazardous Conversion: Hazardous duty members may pay the cost to convert eligible non-hazardous service to hazardous service. The service credit must be in a position that was reported to the Systems under nonhazardous coverage, but has since been approved for hazardous duty coverage by the Board of Trustees. The agency where the non-hazardous service was earned must complete a Form 4150, Certification of Employment in a Hazardous Position, in order for the member to convert the service. Information should be on file at the Systems. Information should be on file at the Systems. Form 4225, Form 4226 (school board) -or- Personnel Forms Form 4150 Service Credit 15

16 Vested Purchase Typ es Delayed Service: A member currently participating and vested in KERS, CERS, or SPRS may purchase service with an agency that did not participate in the Systems but has since joined the Systems. Delayed Service is service worked prior to the date the agency began participating in the Systems or in the case of a member who initially rejected membership, service worked from the member s hire date through his election to participate in the Systems. Ve r i f i ca t i o n R e q u i r e d Form 4225, Form 4226 (school board) Chapter Three Active Duty Military: A member currently participating and vested in KERS, CERS, or SPRS may purchase all periods of active duty service with a branch of the Armed Forces. This purchase may require that the discharge from service be honorable. National Guard/Reserves: A member currently participating and vested in KERS, CERS, or SPRS may purchase one month of credit for every six months served in the National Guard or Reserves. Maternity Leave/Authorized Sick Leave Without Pay/ FMLA Leave: A member currently participating and vested in KERS, CERS, or SPRS 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 agency. Seasonal, Temporary, Emergency, Interim or Part-time: A member currently participating and vested in KERS, CERS, or SPRS may purchase service credit for time served in a seasonal, temporary, interim, emergency, or part-time position (more than 100 hours per month) that occurred with a participating agency. A copy of your DD- Form 214 for each period of active duty. Most recent Annual Statement of Points. Form 4225, Form 4226 (school board) or Personnel Forms or a letter from the agency verifying the period of leave Form 4225, Form 4226 (school board) -or- Personnel Forms State University Service: A member currently participating and vested in KERS, CERS, or SPRS may purchase service credit for certain types of employment with Kentucky s state sponsored universities provided they did not participate in a defined benefit plan during the period of employment. This purchase is limited to the University of Kentucky and the University of Louisville since all other state sponsored universities participate in KERS. Form

17 Vested Purchase Typ es Approved Educational Leave: A member currently participating and vested in KERS, CERS, or SPRS may gain service credit for prior and current service for approved educational leave. Ve r i f i ca t i o n R e q u i r e d Personnel Forms or Letter from agency verifying the period of leave. Federal Service: A member currently participating and vested in KERS, CERS, or SPRS may purchase service worked as a full time federal employee provided the member withdrew all funds or did not participate in the Federal Retirement Systems. Form 4115 Out of State Service (Non-Hazardous): A member currently participating and vested in KERS, CERS, or SPRS may purchase up to 10 years of service credit for full-time out-of-state public service. To qualify, the outof-state service must have been credited in a state or locally administered defined benefit retirement plan, other than one for teachers. The member must provide verification that he or she has received a refund or is not eligible for a retirement benefit from the period of outof-state service. The member must also submit a copy of the job description for his or her out of state public service. Form 4140 Service Credit Out of State Service (Hazardous): A member currently participating and vested for hazardous duty retirement in KERS, CERS, or SPRS 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 he or she has received a refund or is not eligible for a retirement benefit from the period of out of state service. Vocational/Technical School Service: A member currently participating and vested in KERS, CERS, or SPRS 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. Form 4140 and a copy of the former job description. Form or- Personnel Forms 17

18 Vested Purchase Typ es Community Action Agency/Mental Health-Mental Retardation Service: A member currently participating and vested in KERS, CERS, or SPRS can purchase service for regular full-time employment with an Area Development District (ADD) or Community Action Agency that does not participate in CERS. Approved Leave to Work for Work-Related Labor Organization: A member currently participating and vested in KERS, CERS, or SPRS may purchase service credit for periods of approved leave to work for a workrelated labor organization provided that the agency approving the leave subsequently participated in CERS. Ve r i f i ca t i o n R e q u i r e d Form or- Letter from agency verifying period of service. Letter from the IRS or U.S. Dept. of Labor stating that the purchase is allowable under federal restrictions. Chapter Three Area Development District (ADD)/Business Development Corporation: A member currently participating and vested in KERS, CERS, or SPRS may purchase service for employment with an Area Development District created pursuant to KRS 147A.050 or a business development corporation created pursuant to KRS to which does not participate in Kentucky Retirement Systems. Letter from the IRS or U.S. Dept. of Labor stating that the purchase is allowable under federal restrictions. Non-Q ualified S er vice Members currently participating and who participated prior to August 1, 2002, may purchase up to 5 years of service once they have 15 years of total service in a state administered retirement system. At least 5 of the 15 years required for this purchase type must be in KERS, CERS, or SPRS. The nonqualified service may not be used for benefit purposes until the member has accrued 20 years of service, excluding the nonqualified service. Ve r i f i ca t i o n R e q u i r e d Information should be available at the Systems. note Copies of the forms listed above can be requested from the Systems. In addition, copies of the Form 4115, Form 4120, Form 4140, Form 4225, or Form 4226 can be downloaded from our web site at Paying For a Service Purchase Eligible service credit may be purchased by the following payment methods: 1. Lump Sum Payment: Service may be purchased by making a lump sum payment to Kentucky Retirement Systems. 18

19 2. Installment Purchase of Service Agreement (IPS): Members participating in KERS, CERS, or SPRS may elect 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 the Systems. To be eligible for payroll deduction, the purchase cost must be at least $1, One year of installment payments is allowed for each $1, in cost with a maximum of five (5) years to pay off the cost. An interest charge of 7.75% compounded annually is applied to the cost with this payment method. More information on the before-tax installment purchase of service agreement (IPS) is covered below. 3. Rollover or Transfer From a Qualified Plan: The Internal Revenue Code allows KERS, CERS, and SPRS, which are qualified plans under Section 401(a), to accept rollovers or, in some cases, trustee-to-trustee transfers from other qualified plans such as: note Section 401(a) Section 401(k) Section 403(b) Section 457 A Conduit or Rollover IRA Traditional IRA In order to complete a direct rollover or transfer of funds from another qualified plan to purchase service with the Systems, the member and the financial institution making the direct rollover or transfer of funds must complete a Form 4170, Direct Transfer/Rollover Acknowledgement Form. A copy of this form can be requested from the Systems or can be downloaded from the Systems web site. Members should check with the administrator of their qualified plans to determine the eligibility of funds for rollover or transfer. Certain funds may not be able to be used for certain purchases. Service Credit Any combination of these three methods may be used to pay for most service purchases. For example, if a member has a purchase cost totaling $18,000, he could submit a $5,000 lump sum check as a down payment and pay the remaining balance of $13,000 with a five-year installment payment plan. Members who wish to combine two or more payment methods--or transfer or roll over funds from more than one plan are advised to contact the Systems in advance for more information. More About the Before-Tax IPS Kentucky Retirement Systems began accepting before-tax IPS agreements in February This payment option allows members to purchase service credit with before-tax contributions, which reduces their taxable income in the year the contributions are made. This option does not eliminate taxes but rather defers 19

20 tax liability until retirement. Often at retirement, a person will be in a lower tax bracket, which can reduce the amount of taxes paid. The before-tax IPS agreement resembles the after-tax IPS agreement with one major exception. All payroll deductions under the before-tax IPS program shall be 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. Can a Member Stop Payment/Pay Off an IPS Contract? While Working: Members who are purchasing service credit through an after-tax IPS agreement can stop payment or pay off the remaining balance of the contract at any time by notifying the Systems. If the member stops payment and does not pay off the IPS contract, the account will only be credited with the service purchased through the last installment payment. Chapter Three You cannot stop payment or pay off a before-tax IPS agreement while you are actively employed with a participating agency. Termination of Employment/Death: Upon termination of employment or death, a member or beneficiary will be given 60 days from termination or death to pay off the remaining balance of a before-tax or after-tax IPS agreement. If the member or beneficiary chooses not to pay off the remaining balance, the account will only be credited with the amount of service purchased through the last installment payment. Members planning to retire will also be given 60 days from termination of employment to pay off a before-tax or after-tax installment purchase agreement; however, payments for the remaining balance of the contract must be received prior to the member s effective retirement date. Example John Doe has an installment purchase agreement and is planning to terminate employment on July 31, He chooses to pay off the remaining balance on the contract and does so on August 10, Therefore, his effective retirement date will be September 1, Note: John s health insurance coverage with the Systems cannot begin until John s effective date of retirement. Federal Provisions Affecting Service Purchases Federal law places a dollar limit on total voluntary employee contributions in a year. Purchases that exceed the limit (based on age at the time of retirement) are treated as employer provided benefits and are subject to the pension limits in Section 415 of the Internal Revenue Code. For fiscal year , the limit is $44,

21 Repayments of refunds or payments for omitted contributions are not subject to the limit. Purchases made by a rollover or trustee-to-trustee transfer from a qualified retirement plan, deferred compensation arrangement or IRA in accordance with federal law are also not included in the contribution limit. If the total cost of the service to be purchased would cause a member to exceed the contribution limit for the fiscal year, the member may want to consider spreading the purchase over two or more fiscal years by purchasing 12-month increments or, if eligible, by making the purchase through an installment purchase agreement. Please contact a Retirement Systems counselor to determine the best method for making this purchase. S i c k Le a ve S e r v i ce C r e d i t Background Most members of KERS and all SPRS members receive service credit for all unused accumulated sick leave at the time of retirement. Members of CERS may receive service credit for their sick leave at the time of retirement if their employer has adopted a sick leave program with the Systems. There are two (2) types of sick leave programs that the CERS employer may adopt Standard or Alternate. Under the Standard sick leave program, the member receives service credit for up to six (6) months of unused sick leave at the time of retirement. An agency may also elect to split the cost of sick leave in excess of six months with the member or pay the entire cost of sick leave in excess of six months. Service Credit Under the Alternate sick leave program, members are paid for unused sick leave and receive sick leave service credit at the time of termination or retirement. The money paid to the member is used in determining the member s Final Compensation and the service is also used to increase the member s service credit. The following sick leave chart is provided to help you determine the number of months of service you may be credited upon retirement if your agency participates in a sick leave program. 21

22 S i c k Le a ve S e r v i ce C r e d i t e d B a s e d U p o n T h e H o u r s O f S i c k Lea ve Accumulated B y H o u r s Wo r ke d Pe r D a y 4 hr. day 6 hr. day 7 ½ hr. day 8 hr. day Months of Service Chapter Three M e m b e r s Called To Ac t i ve M i l i t a r y S e r v i ce Free military service is service a member is entitled to receive if the member left employment (either terminated or was placed on leave), within 3 months entered the Armed Forces of the United States, and subsequently returns to employment within two years of receiving an honorable discharge. If the member s employment was in a nonparticipating status, such as seasonal or temporary, the service must be purchased in order for the member to be eligible to receive 22

23 free military service credit. If the member contributed, but subsequently took a refund for the period immediately prior to the military service, the refund of contributions must be repaid in order for the member to qualify for free military service credit. Service credit and creditable compensation, as provided in 38 U.S.C. sec. 4318, shall be given for a period not to exceed 6 years. C o m b i n i n g S e r v i ce W i t h O t h e r Re t i r e m e n t P l a n s Members who have service in more than one retirement plan administered by the Commonwealth of Kentucky may be allowed to combine the service in the plans to determine eligibility for benefits, total service credit and Final Compensation (years of highest salary). Each system will pay a benefit based on the amount of service in that system. The six (6) state administered retirement systems are: Kentucky Employees Retirement System (KERS) County Employees Retirement System (CERS) State Police Retirement System (SPRS) Kentucky Teachers Retirement System (KTRS) Judicial Retirement System (JRS) Legislators Retirement System (LRS) If you have an account in more than one of these retirement systems, you should contact the Systems to determine the extent of the reciprocity and the benefits you may be entitled to receive upon retirement. In order to receive benefits from all the systems, you must file the required retirement forms with each system at the time of retirement. Example John was employed with a local board of education in a classified position and accumulated 10 years of service in CERS. He is now employed with the same board of education as a teacher and has accumulated 17 years of service in KTRS. John would be eligible to retire at any age with no reductions in his retirement benefits because he has accumulated a combined total of 27 years of service. John would receive a retirement check from CERS based upon his 10 years of service and a separate retirement check from KTRS based on his 17 years of service. John would need to apply to each retirement system separately for retirement benefits. Service Credit Also, vested service in a retirement system other than the Kentucky Teachers Retirement Systems sponsored by the Kentucky Higher Education Assistance Authority, Council on Postsecondary Education, or a state-sponsored university in Kentucky, may apply toward attaining 25 years of service credit for reduced retirement benefits or 27 years retirement credit for unreduced retirement benefits. You must have 15 years current service in Kentucky Retirement Systems. This service is not used in determining the monthly benefit you will receive at retirement. In addition, the service does not apply toward vesting for medical insurance benefits except for employees of the Council on Postsecondary Education who meet certain criteria specified by statute. 23

24 Wh e n I s A M e m b e r E l i g i b l e To Re t i re? Background Retirement eligibility is dependent upon the member s age, service credit, and type of service (non-hazardous or hazardous). For members participating prior to August 1, 2004, the amount of service credit used to determine retirement eligibility includes current service, prior service, purchased service, and sick leave service. For members participating on or after August 1, 2004, the amount of service credit used to determine retirement eligibility includes current service and sick leave service but does not include purchased service, with the exception of Recontribution of Refunded Service and Omitted Service. Non-Hazardous Members For Non-Hazardous members, the requirements for Normal Retirement are: C h a p t e r Fo u r : Re t i r e m e n t E l i g i b i l i t y & B e n e f i t s A non-hazardous member, age 65 or older, with at least 1 month of service credit may elect to receive a benefit for life that is an actuarial equivalent to twice the member's contributions and interest. Chapter Four A non-hazardous member, age 65 or older, with at least 48 months of service credit is eligible to receive an unreduced monthly benefit for life based on the member s salary and service credit. For Non-Hazardous members, the requirements for Early Retirement are: A non-hazardous member with 27 or more years of service credit can retire at any time with no reduction in benefits. A non-hazardous member with at least 25, but less than 27 years of service credit, may retire at any time, prior to age 65, with a reduction in benefits. A non-hazardous member, age 55, with at least 5 years of service credit may retire with a reduction in benefits. If a member is eligible for a reduced benefit, the amount of reduction will depend upon the member's age or years of service at retirement. The following chart shows the reductions for age or service. Ye a r s t o A t t a i n Ag e 6 5 o r 2 7 Ye a r s o f S e r v i ce ( W h i c h e ve r i s Le s s ) % o f N o n - H a z a r d o u s B e n e f i t Pa i d 24 1 Year 95% 6 Years 71% 2 Years 90% 7 Years 67% 3 Years 85% 8 Years 63% 4 Years 80% 9 Years 59% 5 Years 75% 10 Years 55%

25 Example A member has 25 years of service and is age 55. If the member chooses to retire, his/her benefit will be reduced to 90% (5% for each year away from 27 years of service). Hazardous Members For Hazardous members, the requirements for Normal Retirement are: A hazardous member, age 55 or older, with at least 1 month of hazardous duty service credit may elect to receive a benefit for life that is an actuarial equivalent to twice the member's contributions and interest. A hazardous member, age 55 or older, with at least 60 months hazardous duty service credit is eligible to receive an unreduced benefit based on the member s salary and service. For Hazardous members, the requirements for Early Retirement are: A hazardous member with 20 or more years of service credit may retire at any time with no reduction in benefits. A hazardous member, age 50 with at least 15 or more years of service credit may retire with a reduction in benefits. If a hazardous duty member is eligible for a reduced benefit, the amount of reduction will depend upon the member's age or years of service at retirement. The following chart shows reductions for age or service. Years to attain age 55 or 20 Years of Service (Whichever is Less) % of Hazardous Benefit Paid 1 Year 94.5% 2 Years 89.0% 3 Years 83.5% 4 Years 78.0% 5 Years 72.5% Retirement Eligibility & Benefits Example A member has 18 years of service and is age 52. If the member chooses to retire, his/her benefit will be reduced to 89% (5.5% for each year away from 20 years of service). 25