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Benefit Calculation

​​​​​​​​​​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 th​at one fund may receive Upside Sharing Interest, and another fund would not.​

Example of Upside Sharing Interest
InstructionsFactors
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
SystemBaseUpside SharingTotal
CERS Nonhazardous4.00%1.89%5.89%
CERS Hazardous4.00%2.01%6.01%
KERS Nonhazardous4.00%1.21%5.21%
KERS Hazardous4.00%1.80%5.80%
SPRS4.00%1.57%5.57%

Actuarial Factors

The member's age at retirement and type of service (hazardous or nonhazardous) determine the actuarial factor.

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

Actuarial Factors for Nonhazardous Members
Age at RetirementActuarial Factor
43203.182020
44201.601850
45199.945982
46198.226985
47196.446939
48194.610459
49192.722340
50 190.791488
51188.829604
52186.783399
53184.650636
54182.426379
55180.106856
56177.687428
57175.163644
58172.542464
59169.925609
60167.346525
61164.764198
62162.142797
63159.451715
64156.665325
65153.762907
66150.728886
67147.552258
68144.226735
69140.750536
70137.125678
71133.358503
72129.458446
73125.438014
74121.312562
75117.098779
76112.815417
77108.482166
78104.119047
7999.746061
8095.382974
Actuarial Factors for Hazardous Members
Age at RetirementActuarial Factor
43200.709276
44199.022455
45197.256200
46195.424407
47193.528832
48191.574284
49189.565335
50187.509206
51185.416934
52183.239644
53180.975153
54178.618594
55176.167668
56173.617409
57170.963698
58168.224667
59165.545982
60162.899727
61160.244237
62157.543528
63154.767311
64151.890423
65148.893196
66145.761198
67142.484927
68139.059905
69135.486120
70131.767698
71127.912922
72123.933232
73119.843128
74115.659498
75111.400832
76107.087137
77102.739047

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