The three systems operated by KPPA are qualified defined benefit plans. A defined benefit plan pays benefits based on a formula.
Monthly Life annuity formula*
Accumulated Account Balance \ Actuarial Factor = Monthly Life Annuity
*Service credit is used to determine
retirement eligibility but is not part of the Tier 3 benefit calculation. Accumulated sick leave, annual leave, or compensatory time payments earned by the employee will not be used to calculate retirement benefits.
Accumulated Account Balance
A member's Accumulated Account Balance has four components:
Employee Contributions + Base Interest + Employer Pay Credits + Upside Sharing Interest
1. Contributions
Members contribute a percent of their
creditable compensation as set by state law:
Nonhazardous Members
5% + 1% insurance*
Hazardous Members
8% + 1% insurance*
*The 1% health insurance contribution is deposited to a non-refundable trust to fund insurance benefits.
2. Base Interest
Tier 3 accounts earn a base of 4% interest annually on both the member contributions and the employer pay credit balance. Interest is credited to a member's account each June 30, based on the account balance from the preceding June 30. New members do not see interest credited in their first year since there is no prior year balance.
3. Employer Pay Credit
When KPPA receives employer contributions, and Employer Pay Credit is deposited to the member's account. Nonhazardous members receive a 4% Employer Pay Credit. Hazardous members receive a 7.5% Employer Pay Credit. The Employer Pay Credit represents a portion of the employer contribution rate.
Most employers list the full employer contribution rate on your paycheck instead of just the Employer Pay Credit that is deposited into your account.
4. Upside Sharing Interest
Upside sharing interest is the additional interest credit that may be applied to a Tier 3 account.
IT IS NOT GUARANTEED. The following conditions must be met before Upside Sharing Interest is credited:
- The system's Geometric Average Net Investment Return (GANIR) for the last five (5) years must exceed 4%
- The member must have been active and participating in the fiscal year
If the GANIR exceeds 4%, the member's account will be credited with 75% of the amount of return over 4%. It is applied to the account balance as of June 30 of the prior fiscal year.
The geometric average net investment return is calculated for each individual fund: CERS Nonhazardous, CERS Hazardous, KERS Nonhazardous, KERS Hazardous, and SPRS. It is possible that the Upside Sharing Interest percentage will differ from fund to fund. It is also possible that one fund may receive Upside Sharing Interest, and another fund would not.
Example of Upside Sharing Interest
| Instructions | Factors |
| Assumed Geometric Average Net Investment Return: | 7.5% |
| Minus Base Interest: | - (4.0%) |
| Amount of Return in Excess of the Base Interest: | 3.5% |
| Multiplied by 75%: | 75% |
| UPSIDE SHARING INTEREST CREDIT = | 2.63% |
| Add Base Interest: | +4.0% |
| TOTAL INTEREST PAID: | 6.63% |
Interest for FY 2022
| System | Base | Upside Sharing | Total |
| CERS Nonhazardous | 4.00% | 1.89% | 5.89% |
| CERS Hazardous | 4.00% | 2.01% | 6.01% |
| KERS Nonhazardous | 4.00% | 1.21% | 5.21% |
| KERS Hazardous | 4.00% | 1.80% | 5.80% |
| SPRS | 4.00% | 1.57% | 5.57% |
Actuarial Factors
The member's age at retirement and type of service (hazardous or nonhazardous) determine the actuarial factor. Based on the results of the most recent actuarial experience study for each plan, the factors will change effective July 1, 2024. The updated factors are listed below and have been added to the calculators used in Member Self Service. View current factors
Actuarial factors are subject to change:
- Accrued benefits are protected but the General Assembly could change future benefits if fiscal circumstances call for it.
-
Experience studies are performed by KPPA's actuary at least every two years to compare each plan's actuarial experience to what had been expected (the assumptions). Actuarial factors may be adjusted as appropriate based on experience study results.
Members may utilize Self Service to calculate Tier 3 benefits using the current actuarial factors. To calculate your Tier 3 benefits using the current actuarial factors listed below, visit
MYRETIREMENT.KY.GOV