This SUMMARY PLAN DESCRIPTION is not intended to be a full and complete description of the governing law -- exceptions may apply. If you have specific questions about your retirement benefit, you should contact the System's office.
All members of the General Assembly, who were first elected prior to January 1, 2014, are eligible for membership. Membership is not automatic, but is attained by executing an Election to Participate. The election had to have been made thirty (30) days after taking office and was effective to establish membership in the Plan as of the date of taking office. The election made when first taking office, either to participate or not to participate in the Plan, is binding as to all future terms, whether or not consecutive. If the election is not to participate in the Plan, the legislator automatically became a member of the Kentucky Employees Retirement System. Membership continues only so long as the member holds an office qualifying him/her for membership. However, a member who ceases to make personal contributions to the Plan may elect to terminate his or her membership in the Plan and become a participant in the Kentucky Employees Retirement System. This termination of membership does not constitute a retirement; therefore, benefits will not be payable by the Plan until such time as the legislative office is vacated by the member.
Rate. Members are required to make personal contributions to the Plan throughout the period of their membership, except that such member will not be required to contribute to the Plan once the member is vested in a service retirement allowance equal to one hundred percent (100%) of final compensation. The 100% maximum allowance is reached when the member’s years of service multiplied by the member’s service credit rate equals or exceeds 100%. In this event, the member will continue to accrue service credit. Members electing to participate in the Plan prior to September 1, 2008, contribute five percent of their creditable compensation, and members electing to participate in the Plan on or after September 1, 2008, contribute six percent of their creditable compensation.
Income Tax Treatment. Member’s contributions for service after August 1, 1982, will continue to be deducted from salary payments, but, for federal and state income tax purposes, the amounts of the contributions will be deemed to have been paid by the state and will not be considered to be current income; they will, however, count as income for purposes other than taxation. If a member leaves office without being vested and contributions are withdrawn, such of the contributions as were deemed to have been paid by the state must be reported for federal income tax purposes. When a member retires and starts to draw benefits, contributions deemed to have been paid by the state cannot be offset, for federal income tax purposes, against benefits received by the member.
Refund to a Former Member. The only circumstance in which contributions will be refunded to a member is if membership ceases (other than by death) before the member has become vested. In that instance, a refund will be made when applied for. One of the refund options is that the accumulated contribution account is payable directly to the member – in that event, applicable federal taxes are withheld by the Plan. A tax-free rollover of the accumulated contribution account to another qualified retirement plan is the other refund option. No interest will be paid upon a refund except that when a refund taken before a designated age (now 59-1/2) would be subject to a special federal excise tax, and the member chooses to defer taking the refund, it will accrue simple interest at 6.00% per annum until the refund is taken or until the date as of which the excise tax no longer applies, whichever is sooner. One of the conditions of regaining legislative service credit for the years of prior service is repayment to the Plan of the amount of the refunded contribution account with interest.
Refund to a Deceased Member’s Designee. Contributions of a deceased active member or a retiree shall be refunded in the event the contributions have not been recouped by the payment of benefits to the member, or the member’s qualified survivors. A member may designate a beneficiary (other than the member’s spouse or children under the age of 21) who shall receive the accumulated contributions made by the legislator. Absent a designation by the legislator, the accumulated contributions shall be paid to the legislator's estate. Any payment of benefits payable to the legislator, prior to the death, and/or any payment of benefits payable to the legislator's qualified survivor, shall be used to offset the contributions. A Designation of Beneficiary form is available at the Plan’s office.
To be eligible for benefits, a member must be vested in the Plan. Five years of legislative service , or eight years of state governmental service credit is necessary to meet the vesting requirement. This is not a requirement for the payment of benefits to the surviving spouse of a member who dies in office. If such legislator leaves office and has live service credit in, or is receiving benefits from, another state-supported retirement system of the Commonwealth, such credit may be combined with the earned credit in the Plan for the purpose of meeting the vesting requirements of the Plan and of the other system.
If a member leaves office without being vested in the Plan, and subsequently earns credit for nonlegislative service in one of the other retirement systems of the Commonwealth, service credit in the Plan may be combined with service credit in the other system, for vesting purposes. Vesting will not be achieved unless the member’s contributions were left in the Plan, or, if the contributions were withdrawn, the member has repaid them with interest while holding membership in the other system.
Legislative Service. Service credit is allowable only for service in the capacity of a state legislator, or a legislator before the Plan was established. The month in which a period of service began, and the month in which it ends, each will be counted as a full month of service without regard to the number of days served.
Nonlegislative Service. A member of the Plan who has achieved vested status, is eligible to purchase and/or transfer the following nonlegislative service, except that the member must have been a participant in the Plan on June 21, 2001 to purchase nonlegislative service identified as Service Not Otherwise Purchasable. Nonlegislative service purchased and/or transferred will be credited to the member’s account at the member’s prevailing service credit rate, upon satisfaction of the member’s liability by a qualified payment. The types of nonlegislative service are:
A maximum of ten years of qualified service credit earned in a retirement system administered by the Kentucky Retirement System.
United State Government service.
A maximum of four years of Active Military Service.
One month of service for each six months of service in the Reserves or the National Guard.
A maximum of four years of service as a Domestic Relations Commissioner.
A maximum of four years of service as a Master Commissioner.
A maximum of four years of service as a District Court Trial Commissioner.
A maximum of five years of Service Not Otherwise Purchasable.
The member’s cost can be paid by lump sum, an installment contract or by a direct trustee-to-trustee transfer or rollover of funds permitted by 26 U.S.C. sec. 401(a)(31), 402(c) and 408 (d)(3). If the member chooses to pay the cost by installments through payroll deduction, the cost of the credit shall be computed in the same manner as for a lump-sum payment, which shall be the principal. Interest, at the annual actuarial rate in effect at the time each payment is made, shall be added to each monthly payment at the rate of one-twelfth of the annual interest rate applied to the declining principal amount. The annual actuarial interest rate of the Plan is 6.50% at this time. If a member leaves office before completing the installment contract, the member may satisfy the contract by a lump-sum payment of the remaining principal amount. An installment contract shall be for a period of not less than one year, or more than five years. In compliance with Internal Revenue Code Section 415(c) limitations, the member’s contribution after January 1, 2008 is limited (on an annual basis) to the lesser of $56,000.00 or 100% of compensation. The IRC limitation does not apply to a repayment of refunds; pre-tax contributions, rollovers and transfers from a qualified plan; or a transfer of nonlegislative service by a legislator who first became a member of the Plan before July 1, 1999.
Formula. The normal retirement benefit is calculated as follows: final compensation, which is the average of the member's three highest years of legislative creditable compensation, times the member's service credit rate, times the years of service credited to the member's account. Members of the Plan contributing on or after June 20, 2005, are eligible for reciprocity for service in the Kentucky Retirement System, the Kentucky Teachers Retirement System and the Judicial Retirement Plan in determining the high three salary years, provided there is a simultaneous commencement of benefits from the systems or plans included in the reciprocity. (Reciprocity with the Judicial Retirement Plan also applies to former members not receiving Plan benefits as of June 20, 2005.) The service credit rate, is 2.75%, except for members who were in office on July 1, 1982, the service credit rate varies according to the date of entering legislative service, as follows: entry before July 1, 1978, 5.00%; entry between July 1, 1978 and June 30, 1980, 4,15%; entry between July 1, 1980 and June 30, 1982, 3.50%. In all retirement formulas, more than one-half of a month is counted as a full month for computing total years of service and age.
Normal Retirement Benefit. The benefit is payable in the full computed amount only if the retiree is at his/her normal retirement age (or over) at the commencement of retirement benefit payments, or the retiree has 27 years of total state governmental service credit. The normal retirement age is 65, except that it shall be reduced by one year, but no more than five years total, for each five years of service credit in the Plan, and each year of service credit the member has earned beyond that needed to receive a retirement benefit of 100% of final compensation.
Early Retirement Benefit. A retiree at an age below normal retirement age, or with less than 27 years of state governmental service credit may choose to be paid reduced benefits commencing at retirement, or at any age before reaching normal retirement age. In that event, the benefit will be reduced five percent per year for the lesser of the number of years between (a) the retiree’s normal retirement age and the retiree’s actual age at the time benefits commence, or (b) 27 years of service and the retiree’s years of total governmental service.
Alternative Benefit Payment Options. Before the commencement of benefit payments, the member (or retiree) may elect to take an optional retirement allowance that shall be actuarially equivalent to the amount of retirement allowance otherwise payable to the member/retiree and potential survivor. The options shall include survivorship 100%, or survivorship 66-2/3%.
Benefits Payable While Continuing in Service. The 1986 Federal Tax Reform Act imposed an excise tax on vested benefits of a public retirement plan not drawn by a member who had reached a specified age (then age 70-1/2) but continued in service. Legislation was passed in 1988 to allow the Plan to commence payment of benefits to a member who would be subject to such excise tax. The 1988 Federal Tax Reform Act repealed this requirement; however, if federal law again makes such a requirement, benefits under the Plan to the member will commence as of the date the member reaches the specified age, calculated as if the member had retired on the commencement date. Such member will have the option of continuing to be a participating member of the Plan while remaining in service, in which case additional benefits will accrue, counting the years of service after the commencement of drawing the initial benefits. The combined monthly total of the initial and additional benefits cannot exceed the final compensation on which the additional benefits are calculated.
Return to Membership After Period of Drawing Benefits. If a member retires and draws benefits, and thereafter again becomes a member (by again occupying a qualified office), the current benefits will continue, and the member will accrue additional benefits on the same basis as described in the preceding paragraph for a member drawing benefits while still in service.
Combining Service Credit of Spouses. Where spouses both have served in the General Assembly, but not simultaneously, and each elected to participate and accumulated service credit in the Plan, they may combine their credit into a single account, and designate to which one the normal retirement benefit shall be paid.
Designation of Beneficiary. Upon the death of a member or retiree, the surviving spouse, or if none, the qualified child (or children) of the member or retiree is entitled to survivor’s benefits. However, a member/retiree may designate that a qualified child (or children) shall receive all or a portion of those benefits to which the spouse otherwise would have been entitled.
Surviving Spouse of Member Who Dies in Office. No minimum period of service by the member, or minimum age, is required to make eligible for benefits the surviving spouse of a member who dies in office. If the member was under age 65 at death, the surviving spouse will be entitled to a monthly benefit, payable for life, equal to one-half the benefit the member would have been entitled to had the member continued to serve until reaching age 65. If the member was 65 or older at death, the surviving spouse’s benefit will be one-half the benefit the member would have been entitled to receive had the member retired on the day of death, on the basis of the number of years of service credit the member had achieved. The final compensation to be used in either formula is the average monthly compensation of the member’s office for the 60 months immediately preceding death.
Surviving Spouse of Retiree Who Dies After Leaving Office. A surviving spouse of a retiree who dies after leaving office is entitled to benefits only if married to the former member at the time the member left office. If the retiree is drawing benefits at the time of death, the surviving spouse shall be entitled to the amount prescribed in the “Benefit Payment Option” selected by the retiree at the time benefits commenced. The benefit payment options are (1) one-half of the retiree’s normal retirement benefit, (2) survivorship 100% benefit or (3) survivorship 66-2/3% benefit. If the retiree had deferred drawing benefits, the surviving spouse is entitled to a monthly benefit equal to one-half of the retiree’s normal retirement benefit.
Benefits for Children. If a member or retiree dies leaving no surviving spouse eligible for benefits, or leaves such a spouse who later dies, a benefit equal to the spouse’s benefit will be payable to the child (or children, collectively) of the member or retiree. The benefits will be payable until the child’s 21st birthday, unless the child is disabled. Benefits to a disabled child will continue for his/her life.
Federal Estate Tax Liability. If the size of the member’s/retiree’s overall estate requires the filing of a Federal Estate Tax Return, the question may arise as to tax liability for so much of the actuarially expectable total surviving spouse’s benefits as may be considered to represent a return of the member’s contributions. The Plan has copies of a statement from the office of the District Director of the Internal Revenue Service relative to the method of computation to be used in such case, and will furnish a copy to a surviving spouse on request.
Kentucky Inheritance Tax Liability. A surviving spouse’s benefits are exempt from Kentucky inheritance tax.
A member under age 65 may, under conditions specified in the statute, retire for disability, and in that event will be entitled to a monthly benefit equivalent to the benefit the surviving spouse would receive had the member died on the date of disability retirement. The retirement will continue for the duration of the disability, except that the member, on reaching normal retirement age, may elect to receive the benefit that would have been payable beginning at normal retirement age had the member retired outright on the date of retirement for disability. If the disability terminates, the member shall be entitled thereafter to the benefits that would be payable had the member retired outright on the date of retirement for disability.
Each July 1, a recipient of a monthly pension benefit from the Plan shall receive a 1.50% cost-of-living adjustment (pro-rated for the first year, if the recipient has been retired for less than one year) if: 1) the funding level of the Plan is greater than 100% and subsequent legislation authorizes the use of any surplus actuarial assets to provide for the increase; and 2) the Kentucky General Assembly appropriates sufficient funds to fully prefund the increase.
Federal Income Tax. Benefits are subject to federal income tax. However, the percentage of each monthly benefit that may be considered to be attributable to contributions made by the member before August 1, 1982, and to contributions (plus interest) made by the member for the transfer and/or purchase of nonjudicial service credit, as determined on the basis of life expectancies, may be offset against benefits. Member’s contributions assumed to have been paid by the state (for service after August 1, 1982) cannot be offset. A benefit recipient may designate that such amount per month as is desired (or no amount) be withheld for Federal income tax purposes. In the absence of such a designation, the Plan is required to withhold the amount specified in the withholding tables for a married person claiming three exemptions. The 1099-R statement of retirement income is prepared by the Plan and timely mailed to the retiree.
Kentucky Income Tax. Plan benefits are subject to Kentucky income tax; however, Kentucky excludes from taxation a certain amount of retirement income. See Schedule P in the Kentucky Income Tax forms for the exclusion amount and calculation. That portion of a benefit attributable to service prior to January 1, 1998 is not subject to Kentucky income tax.
Hospital and Medical Insurance
If the period of service on which a benefit from the Plan is being paid is at least four years, the Plan will pay a percentage of the premium (subject to the maximum funding level as annually set by the Board of Trustees) for hospital and medical insurance coverage for the retiree and qualified dependents of the retiree. The percentages are dependent upon the legislator's years of service credit, and they are: 4 years through 9 years and 11 months, 25%; 10 years through 10 years and 11 months, 50%; for each year thereafter, an additional 5% is added; at 20 years or more, the percentage will be 100%. If the retiree has service in one, or more, of the other state-supported retirement systems or plans of the Commonwealth, all the retiree’s state governmental service credit shall be consolidated for the purpose of determining the percentage of payment. The percentages are the same as set forth above. The percentage of payment, resulting from consolidation, shall not apply to the qualified dependents of the retiree.
Distribution of Benefit Payments
Monthly benefit checks are directly deposited (via wire transfer) to the recipient’s designated financial institution.
Benefits are not affected by or keyed to Social Security.
CIRCUMSTANCES WHICH WOULD RESULT IN DISQUALIFICATION, INELIGIBILITY, DENIAL OR LOSS OF BENEFITS
- A member, or former member, convicted of a felony relating to his/her duties as a legislator, in any state or federal court, shall forfeit rights and benefits earned after September 16, 1993. The member, or former member, however, shall be enitled to a return of his/her accumulated contributions and interest thereon.
- The lack of sufficient service to meet the vesting requirement will result in ineligibility and denial of benefits.
- A denial of benefits for disability will result if the statutory requirements are not met. A loss of disability benefits will result if the disability ceases to exist.
AGENT FOR SERVICE OF LEGAL PROCESS
Donna S. Early, Executive Director of the System, is the agent for service of legal process.
PROCEDURES FOR PRESENTING CLAIMS AND REMEDIES FOR REDRESS OF DENIED CLAIMS
Claims for benefits are to be presented to the office of the System. That office on request will supply the necessary forms. The Executive Director of the System will determine routine claims. The Board of Trustees of the System (on reference by the Executive Director) will determine extraordinary or questionable claims.
Action taken by the Executive Director can be appealed to the Board of Trustees by written request.
SOURCES OF FINANCING RETIREMENT BENEFITS
The sources of financing retirement benefits are (1) members’ contributions, (2) legislative appropriations and (3) proceeds of investments.
STATUTORY REQUIREMENT FOR FUNDING AND FUNDING REQUIREMENT STATEMENT
Under KRS 21.525, the state is required to contribute annually an amount determined by applying either the entry age normal cost funding method or the unit credit actuarial method to the creditable compensation of the members of the Plan who elected to participate in the Plan before January 1, 2014. The state shall also contribute an amount equal to one percent of the unfunded past service liabilities, plus interest at the actuarially assumed rate of interest of the Plan. The most recent actuarial valuation of the Plan, as of July 1, 2017, calculated the amount of state contributions required for the 2018-2020 fiscal biennium to continue to meet funding requirements. No funding was appropriated by the 2018 General Assembly to the Kentucky Legislators Retirement Plan in accordance with the statutory formula for fiscal year 2018-2019 or fiscal year 2019-2020.