How is my Benefit Calculated?
The three systems administered by KPPA in Tier Two are qualified defined benefit plans for members participating prior to January 1, 2014. A defined benefit plan pays benefits based on a 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.
A Tier Two member's Final Compensation, or Salary Average, is determined by dividing the total salary earned (Last 5 or 3-High) by the total months worked, then multiplying by twelve (12).
Nonhazardous retirement benefits are based upon your last five (5) years' salaries. When Final Compensation is based on the last five salaries, it must include 60 months - the years used must be full (12 month) years.
retirement benefits are based on a member’s three fiscal years with the highest
monthly average (3-High). When Final Compensation is based on the 3-High it
must include 36 months. The years must be full (12-month) years.
Member Pension Spiking
In 2017, Kentucky Revised Statute 61.598 was amended to establish a different process for pension spiking.
Under current law, KPPA reviews the last five fiscal years of employment for Tier 1 and Tier 2 members retiring on or after January 1, 2018. Any increase in salary earned after July 1, 2017 in excess of 10% from the immediately preceding fiscal year will be exempt from creditable compensation when calculating the member's retirement benefit, if the fiscal year is to be used in the member's final compensation. KPPA will refund member contributions and interest attributable to the reduction in creditable compensation back to the employer. KPPA will allocate the employer contributions to the appropriate system to offset the unfunded pension liability.
A member's final compensation will be adjusted unless the increase in creditable compensation by more than 10% is due to one of the following exemptions:
- Bona Fide promotion or career advancement;
- Lump sum payout for compensatory time at termination only;
- Lump sum payout for alternate sick leave payments;
- Increases in years where the member was on leave without pay in the prior fiscal year;
- An increase due to overtime work and pay as the result of a state or federal grant, grant pass-through, or a similar program that requires overtime as a condition or necessity of the employer's receipt of the grant, or the first one hundred (100) hours of mandatory overtime that an employee is required to work by the employer during a fiscal year;
- An increase due to overtime work and pay required by a state of emergency declared by the President of the United States or the Governor of the Commonwealth of Kentucky, or a local government-declared emergency in which the Governor authorizes the mobilization of the Kentucky National Guard.
Important Note: For retirement dates of July 1, 2021 and after, the 10% cap on creditable compensation growth will not apply when it results in a benefit change of less than $25 per month. If there is a benefit change of $25 or more per month due to pension spiking, the member's creditable compensation will be reduced by the appropriate amount to meet the new $25 monthly threshold.
Member Pension Spiking FAQs
Benefit factors are set by statute and vary depending upon the type of service, amount of service, participation date and the retirement date.
Nonhazardous Member Benefit Factors
1.10% - Service Credit less than or equal to 120 months
1.30% - Service Credit between 121 and 240 months
1.50% - Service Credit between 241 and 312 months
1.75% - Service Credit between 313 and 360 months
2.00% - Service Credit in excess of 360 months only
Hazardous Member Benefit Factors
1.30% - Service Credit less than or equal to 120 months
1.50% - Service Credit between 121 and 240 months
2.25% - Service Credit between 241 and 299 months
2.50% - Service Credit greater than 300 months
Years of Service
The years of service used in a Tier Two member's calculation include current service, prior service, purchased service, and sick leave service. This applies to all service purchases made by the member or employer with the exception of omitted service, re-contribution of service refunds, and hazardous conversions as well as service credit for free military and purchase of sick leave in excess of 6 months.
Current Service - Service earned by working in a participating position.
Prior Service - Service earned before the establishment of the Retirement Systems (July 1, 1956, for KERS, July 1, 1958, for CERS and SPRS).
Purchased Service - Service purchased by the member to enhance the retirement benefit.
Sick Leave Credit - Accrued sick leave balance at the time of retirement.
What do I Pay and What Does My Employer Contribute?
Members pay a pre-tax 5% rate based on creditable compensation, if nonhazardous; 8% if hazardous duty. Employers pay different rates based on the member's system, and nonhazardous vs. hazardous duty. Additionally, you pay a pre-tax 1% Health Insurance Contribution that is used to fund insurance benefits.
The employer contributions are paid into the Retirement Allowance Account, and are used for paying monthly benefits. The County Employees Retirement System (CERS) and the Kentucky Retirement Systems (KRS) 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. The Kentucky Employees Retirement System (KERS) and the State Police Retirement System (SPRS) employer rates are subject to approval by the Kentucky General Assembly through the adoption of the biennial Executive Branch Budget. The CERS Board sets CERS contribution rates, unless altered by legislation enacted by the General Assembly. See the current Employer Contribution Rates.
Can Tier 2 Members Opt-In to Tier 3? How?
Tier 2 members are eligible to opt-in to the Tier 3 Hybrid Cash Balance Plan. Tier 2 members that choose this option will have their accumulated contributions, less any interest earned, deposited into a hybrid cash balance account. Read more.
Am I Eligible for a Refund of My Account if I Quit My Job?
At the time of termination, you are eligible to either take a refund of your accumulated account balance or begin receiving monthly payments, if eligible for retirement. You can also leave your funds in your account until the time you either become reemployed or are eligible to retire. If you terminate employment and request a refund, you are eligible only for your member contributions and associated interest. Learn more on our
Refund of Contributions page.