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Cash Balance Plan

​​​​​​​​​​​​​​​​​​​​​The Hybrid Cash Balance Plan is for Tier 3 members who began participation on or after January 1, 2014. Tier 3 is referred to as a hybrid plan because it has characteristics of both a defined benefit plan and a defined contribution plan.  This plan resembles a defined contribution plan because it determines the value of benefits for each participant based on individual accounts. However, the assets of the plan remain in a single investment pool like a traditional defined benefit plan.

Laws governing Tier 3 benefits allow the General Assembly to change pension benefits and health insurance benefits for members participating on or after January 1, 2014 if fiscal circumstances call for it. If this occurs, the member's accumulated account balance as of the effective date of the law change is not affected.

How Does It Work? 

Members contribute a percent of their creditable compensation​ set by state law. Employers also contribute a set percentage, known as the Employer Pay Credit, which is deposited to the member's account. This Employer Pay Credit represents a portion of the employer contribution rate.

Tier 3 accounts earn a guaranteed amount of base 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.

Upside Sharing Interest is an additional interest credit that may be applied to a Tier 3 account. Upside Sharing Interest is not guaranteed (read more below). A member must have been active and contributing during the fiscal year to receive Upside Sharing Interest.

When a member is eligible to retire, the benefit is calculated based on their accumulated account balance and an actuarial factor based on age at retirement and type of service (hazardous or nonhazardous). Read more about Tier 3 retirement eligibility​.

Investment of Contributions

Tier 3 members do not make their own investment decisions and do not bear the risk of investment losses. The assets of the plan remain in a single investment pool and the employer assumes all the investment risk. Even if the underlying investments lose value, the employer is still obligated to pay the required contribution so the plan can pay a benefit based on the member's individual account balance.

In other words, a Tier 3 member's retirement account will never be reduced due to investment losses. The CERS and KRS Boards and KPPA's investment professionals are responsible for investment decisions that affect Tier 3 accounts. The Boards establish clearly defined investment policies, objectives, and strategies for both the pension and insurance portfolios. The investment policies and detailed monthly investment performance reports are published in the Investments Library of our Investments section.​

Total ​​Interest Credited to Hybrid Cash Balance Plan Accounts

Total ​​Interest* Credited to Hybrid Cash Balance Plan Accounts
CERS Nonhazardous5.13%4.97%8.76%5.68%5.89%
CERS Hazardous5.34%5.15%8.90%5.79%6.01%
KERS Nonhazardous4.58%4.57%7.96%5.28%5.21%
KERS Hazardous5.21%5.07%8.74%5.70%5.80%

* These percentages include both the guaranteed base interest of 4% plus the additional Upside Sharing Interest.

Am I Eligible for a Refund of My Account if I Quit My Job?

If a member chooses to take a refund of their account balance, they will receive their individual retirement contributions plus any accumulated interest. Please note that the one percent health insurance contribution paid by Tier 3 members is deposited in a non-refundable trust to fund insurance benefits.

Tier 3 members with at least 60 months of service credit are vested and will also receive employer pay credits and any associated Upside Sharing Interest. Tier 3 members with less than 60 months of service credit are only eligible for a refund of the member portion of the account balance. In this situation, the member is not vested, which means the refund will not include employer pay credits, interest on the pay credit balance, or Upside Sharing Interest. Learn more about refund of contributions.

Do Leave and Compensatory Payments Enhance my Benefit?

Any accumulated sick leave, annual leave, or compensatory time payments earned by the employee will not be used in calculating retirement benefits.

​​Examples of How Accounts Earn Interest and Grow

​Over time, the value of a member's account balance can increase a great deal because of compounding interest. Members can view their account balance and calculate benefit estimates using our Self Service website​.

The following examples are fictitious:

  • Real world numbers may vary.
  • Examples do not reflect any service that may be purchased, pay raises, inflation, or market performance. 
  • Both examples are based on a yearly salary of $35,000 with only Base Interest applied. No Upside Sharing Interest is included.
John began working at 40 years of age, is currently 65, and has nonhazardous service
YearMember ContributionBase InterestEmployer Pay CreditEmployer Pay Credit InterestAccumulated Account Balance as of 6/30
John began working at 20 years of age, is currently 45, and has hazardous service
YearMember ContributionBase InterestEmployer Pay CreditEmployer Pay Credit InterestAccumulated Account Balance as of 6/30

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