Pension rules would exclude certain pay increases from benefit reductions

Kentucky retirement systems would limit how much certain large pay increases count toward a retiring employee’s monthly pension. The rules cover employees retiring from the Kentucky Employees Retirement System, County Employees Retirement System, or State Police Retirement System on or after January 1, 2018. Pay increases above 10% over the prior fiscal year generally would not count above the 10% limit. The limit would not apply to bona fide promotions or career advances, certain termination payments, unpaid-leave-related increases, qualifying overtime, or emergency overtime. Only compensation earned on or after July 1, 2017, could be reduced. No reduction would apply if the total monthly pension decrease would be less than $25, or its actuarial equivalent. The rules apply to employees retiring on or after January 1, 2018, and use compensation from the employee’s last five fiscal years.

The Kentucky Public Pensions Authority would review member accounts and adjust recipient benefits to reflect the treatment of certain employerwide pay increases. The review covers members whose effective retirement date occurred on or after July 1, 2021, and concerns pay increases authorized or funded for all employees in a specified class, or required by an approved collective bargaining agreement. Adjustments would include benefits recipients would have received if the amended pay-increase rule had applied immediately before retirement. The review applies to retirement dates on or after July 1, 2021; the record does not state a deadline for completing the review.

The last participating employer would pay added pension costs caused by certain pay increases above 10% for some earlier retirees. This applies to employees retiring on or after January 1, 2014, but before July 1, 2017, when the increase was not caused directly by a bona fide promotion or career advance. The retirement systems would determine the added actuarial cost, meaning the estimated pension cost over time. Employers could pay the final invoice without interest over one year. Termination payments for unused compensatory time would be exempt from this cost rule. The rule covers retirement dates from January 1, 2014, through June 30, 2017.