Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
16.583,
16.645(18),
18A.105,
61.546,
61.552(23),
61.560,
61.565,
61.569,
61.597,
61.598,
61.637(17),
61.675,
61.685,
61.702,
78.545(33),
(37),
78.616,
78.625,
78.652,
26 U.S.C.
401(a)(17), (31),
403(b),
408(a),
(b),
414(g)(6),
457(b),
3121(b)(10),
Pub.
L. 104-191,
Pub.
L. 111-5, Div. A, Title XIII, Div. B, Title IV, 26
C.F.R. 31.3121(b)(10)-2,
29
C.F.R. 519.2(a),
42 C.F.R.
423.504(b)(4)(vi), 45 C.F.R.
Parts 160, 162, 164
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
61.645(9)(e) requires the
Board of Trustees of the Kentucky Retirement Systems to promulgate
administrative regulations necessary or proper in order to carry out the
provisions of
KRS
16.505 to
16.652,
61.510
to
61.705,
and
78.510
to
78.852.
Employers participating in the Kentucky Employees Retirement System, County
Employees Retirement System and State Police Retirement System are required by
KRS
16.645(18),
61.565,
61.675,
78.545(33),
and
78.625
to make contributions to the retirement systems, to report creditable
compensation to the retirement systems and other information that the Board of
Trustees may require, and perform other duties and responsibilities as
participating employers.
26 U.S.C.
401(a)(17) places a limit on
the amount of creditable compensation on which contributions may be made. This
administrative regulation sets out the reporting requirements for all
participating agencies.
Section 1.
(1) Each employer shall submit the reports
required under
KRS
61.675 and
KRS
78.625 electronically using the secure
Kentucky Retirement Systems' Employer Self Service Web site by:
(a) The Enter Report Details Module;
or
(b) Uploading an electronic file
that meets the requirements of the Employer Contribution Record Layout. The
employer shall submit a test file to the retirement systems, which shall be
reviewed for compliance with the requirements of the Employer Contribution
Record Layout. If the test file is in compliance with the requirements of the
Employer Contribution Record Layout, the retirement systems shall certify the
electronic file and inform the employer of the month when the employer may
begin using the electronic file for submitting reports. If the test file is not
in compliance with the requirements of the Employer Contribution Record Layout,
the retirement systems shall inform the employer of the needed corrections to
the test file. The employer shall not submit a report by electronic file
pursuant to this subsection until the test file is certified by the retirement
systems.
(2) The
retirement systems shall notify each employer of the Web address of the secure
Kentucky Retirement Systems' Employer Self Service Web site and shall notify
each employer if the Web address of the secure Kentucky Retirement Systems'
Employer Self Service Web site changes.
(3) Each employer shall submit the
contributions required by
KRS
61.675 and
KRS
78.625:
(a)
Electronically using the secure Kentucky Retirement Systems' Employer Self
Service Web site;
(b) By mailing or
hand delivering a check;
(c) By the
eMARS system maintained by the Finance and Administration Cabinet; or
(d) By wire transfer.
(4) The employer shall report all creditable
compensation paid during a month by the tenth day of the following month.
(a) The employer shall designate the month to
which the creditable compensation should be applied if it is not the month for
which the employer is reporting and if the month the creditable compensation
was earned is the month in which the employee:
1. Became employed;
2. Became eligible to participate in one of
the systems administered by Kentucky Retirement Systems;
3. Was transferred to hazardous coverage from
nonhazardous participation;
4. Was
transferred from hazardous coverage to nonhazardous participation;
5. Terminated from employment; or
6. Became ineligible to participate in one
(1) of the systems administered by Kentucky Retirement Systems.
(b) If the employee is paid
creditable compensation in a lump sum or nonrecurring payment, the employer
shall designate the reason for the lump sum or nonrecurring payment.
1. If the lump sum or nonrecurring payment
was earned during a specific time period, the employer shall designate the time
period during which the lump sum or nonrecurring payment was earned.
2. If the employer fails to designate a
specific time period during which the lump sum or nonrecurring payment was
earned, the payment shall be considered a lump sum bonus pursuant to
KRS
16.505(8),
61.510(13),
or
78.510(13).
(5) The provisions of
subsection (1) of this section shall not apply to the Kentucky Personnel
Cabinet or agencies that are reported by the Kentucky Personnel
Cabinet.
(6) Each employer shall
report employees who are regular full-time employees as defined by
KRS
61.510(21) and
78.510(21)
and shall remit employer and employee contributions for those
employees.
(7) If an employer fails
to withhold from an employee's creditable compensation the full amount of
contributions due from the employee in accordance with
KRS
16.583,
61.560,
61.597,
or
61.702:
(a) The retirement systems shall notify the
employer of the additional amount of employee contributions due from the
employee;
(b) The employer shall
withhold the additional contributions due from the employee in accordance with
KRS
16.583,
61.560,
61.697, or
61.702
from the employee's creditable compensation and remit the additional
contributions to the retirement systems;
(c) If the employee is no longer employed by
the employer, the employer shall notify the retirement systems and the
retirement systems shall refund the contributions submitted by the employer on
behalf of the employee to the employer, which shall withhold the applicable
taxes from the contributions and remit the remaining money to the employee;
and
(d) If the contributions are
refunded in accordance with paragraph (c) of this subsection, then that service
credit shall be omitted service in accordance with
KRS
61.552(23).
(8) Each employer shall report
employees who are not regular full-time employees as defined by
KRS
61.510(21) and
78.510(21),
but shall not remit employer or employee contributions for those employees
unless required to do so pursuant to
KRS
61.680(6), except:
(a) Student employees of public universities
participating in the Kentucky Employees Retirement System who are enrolled as
full-time students in a course of study at the university and who are exempt
from FICA withholding pursuant to
26
U.S.C. 3121(b)(10) and 26
C.F.R. 31.3121(b)(10)-2; and
(b)
Student employees of public universities participating in the Kentucky
Employees Retirement System who are enrolled as full-time students in a course
of study at the university and are classified as full-time students throughout
the fiscal year pursuant to
29
C.F.R. 519.2(a).
(9)
(a) An employer participating in Kentucky
Employees Retirement System or County Employees Retirement System shall not
classify an employee in more than one (1) nonparticipating position status
during the fiscal year, except an employer participating in the County
Employees Retirement System may classify an employee as probationary pursuant
to
KRS
78.510(21)(d) in the same
fiscal year that the employer classifies the employee as seasonal, emergency,
or part-time.
(b) An employer
participating in the Kentucky Employees Retirement System or the County
Employees Retirement System shall not change an employee's position status from
full-time to seasonal, temporary, or interim in the same fiscal year.
(c) An employer shall not classify an
employee as a seasonal employee pursuant to
KRS
61.510(21)(a) or
78.510(21)(a)
unless the duties of the job can only be performed during a defined time period
during a fiscal or calendar year. If the employer classifies an employee as
seasonal and the employee is terminated after the defined time period during a
fiscal or calendar year, there shall be a three (3) calendar month break in
employment before the employer may again classify the employee as a seasonal
employee, except for employers that are school boards. If an employer that is a
school board classifies an employee as seasonal and the employee is terminated
after the defined time period during a fiscal or calendar year, there shall be
a six (6) calendar month break in employment before the employer may again
classify the employee as a seasonal employee.
(d) If an employer violates the provisions of
this subsection, the retirement systems shall determine if the employee worked
or averaged the necessary hours to be in a regular full-time position as
provided in
KRS
61.510(21) or
78.510(21).
If the employee worked or averaged the necessary hours to be in a regular
full-time position as defined by
KRS
78.510(21), the service
credit shall be omitted service in accordance with
KRS
61.552(23).
Section 2.
(1) Each employer shall submit electronic
mail to the retirement systems by logging on to the Kentucky Retirement
Systems' secure electronic mail server.
(2)
(a) If
an employer submits personal information about its employees to the retirement
systems in an unsecure electronic format or submits personal information
regarding its employees intended to be submitted to the retirement systems to
another person or entity by hand delivery, mail, fax, or in an electronic
format; the employer shall notify affected employees in writing of the
disclosure of personal information and provide information regarding obtaining
credit reports.
(b) Personal
information includes the member's first name or first initial and last name in
combination with the member's:
1. Social
Security number;
2. Driver's
license number;
3. Personal
Identification Number permitting access to the member's account; or
4. Medical Information.
(c) The retirement systems shall notify the
employer of a disclosure upon discovery.
(d) The employer shall notify the retirement
systems of a disclosure upon discovery.
(e) The employer shall submit a draft of the
written notification to be made to affected employees to the retirement systems
for approval or denial.
(f) The
employer shall submit copies of the written notifications made to affected
employees to the retirement systems after the notifications have been
made.
(g) If the retirement systems
is required by federal or state law to provide notification to affected members
about the employer's disclosure of personal information or if the retirement
systems determines that it should provide the notification to its affected
members because of the nature or magnitude of the employer's disclosure, the
employer shall reimburse the retirement systems for its costs in notifying
members affected by the employer's disclosure.
(h) In transmitting any medically related
personal information, the employer shall comply with all statutes and
regulations comprising the Health Insurance Portability and Accountability Act
of 1996 "HIPAA",
Pub.L.
104-191 and the Health Information Technology for
Economic and Clinical Health Act "HITECH",
Pub.L.
111-5.
(i) Each employer shall execute a data use
agreement with retirement systems.
Section 3.
(1)
(a) The
retirement systems shall submit an invoice to employers for any payments owed
to the retirement systems, which were not paid through the normal monthly
reports.
(b) The employer shall
remit payment to the retirement systems by the due date provided on the
invoice.
(2) The
retirement systems may offset funds owed by the employer to the retirement
systems with funds owed to the employer by the retirement
systems.
Section 4.
(1) An employer shall pay interest at the
rate adopted by the board for any creditable compensation paid as a result of
an order of a court of competent jurisdiction, the Personnel Board, or the
Human Rights Commission or for any creditable compensation paid in anticipation
or settlement of an action before a court of competent jurisdiction, the
Personnel Board, or the Human Rights Commission including notices of violations
of state or federal wage and hour statutes or violations of state or federal
discrimination statutes.
(2) The
interest shall be assessed from the time period for which the creditable
compensation has been reinstated.
Section 5. If an employer refuses to provide
the retirement systems access to records or information requested in accordance
with
KRS
61.685 or does not respond to a request for
information or records by the retirement systems, the retirement systems may,
if appropriate, hold all payments of:
(1) Any
funds due to the employer; or
(2)
Refunds or initial retirement allowances to any employee or former employee of
the employer whose refund or retirement may be affected by the records or
information requested by the retirement system.
Section 6.
(1) Effective July 1, 1996, and before July
1, 2002, the creditable compensation on which contributions are reported shall
not exceed the maximum annual compensation limit contained in
26 U.S.C.
401(a)(17), $150,000, as
adjusted for cost-of-living increases under
26 U.S.C.
401(a)(17)(B). The
retirement system shall notify employers of the maximum annual compensation
limit. Each employer shall report contributions on all creditable compensation
up to the maximum annual limit. Once an employee's creditable compensation has
reached the maximum annual limit, the employer shall continue to report the
employee's creditable compensation but shall not report any further employer or
employee contributions on the employee's creditable compensation. If excess
contributions are erroneously reported, the retirement system shall refund the
excess contributions to the employer for distribution to the employee after
making payroll deductions in accordance with federal and state law.
(2) Effective only for the 1996 plan year, in
determining the compensation of an employee eligible for consideration under
this provision, the rules of
26 U.S.C.
414(g)(6) shall apply,
except that in applying these rules, the term "family" shall include only the
spouse of the member and any lineal descendants of the employee who have not
attained age nineteen (19) before the close of the year.
(3) Effective with respect to plan years
beginning on and after July 1, 2002, a plan member's annual compensation that
exceeds $200,000 (as adjusted for cost-of-living increases in accordance with
26 U.S.C.
401(a)(17)(B)) shall not be
taken into account in determining benefits or contributions due for any plan
year. Annual compensation shall include compensation during the plan year or
any other consecutive twelve (12) month period over which compensation is
otherwise determined under the plan (the determination period). The
cost-of-living adjustment in effect for a calendar year shall apply to annual
compensation for the determination period that begins with or within the
calendar year. If the determination period consists of fewer than twelve (12)
months, the annual compensation limit shall be an amount equal to the otherwise
applicable annual compensation limit multiplied by a fraction, the numerator of
which is the number of months in the short determination period, and the
denominator of which is twelve (12). If the compensation for any prior
determination period is taken into account in determining a plan member's
contributions or benefits for the current plan year, the compensation for this
prior determination period shall be subject to the applicable annual
compensation limit in effect for that prior period.
(4) A participating member may pay
contributions for the creditable compensation over the maximum annual
compensation limit for the years used to determine the member's final
compensation for purposes of retirement if:
(a) The member's creditable compensation has
exceeded the maximum annual compensation limit contained in
26 U.S.C.
401(a)(17) in years prior to
the fiscal year beginning July 1, 2002;
(b) The member has filed a notification of
retirement; and
(c) The excess
creditable compensation is within the maximum annual compensation limit
applicable in 2002-2003. Upon receipt of employee contributions, the retirement
systems shall bill the employer for the employer contributions on the excess
creditable compensation, and the employer shall remit the employer
contributions to the retirement systems. The excess shall only be included in
retirement calculations if both the employee and employer have paid their
respective contributions.
Section 7.
(1) For members retiring on or after January
1, 2014, but prior to July 1, 2017, the retirement systems shall determine if
annual increases in a member's creditable compensation greater than ten (10)
percent occurred over the member's last five (5) fiscal years of employment.
(a) For each of the member's last five (5)
fiscal years of employment, the retirement systems shall multiply the member's
creditable compensation for the previous fiscal year by 110 percent. If the
member's creditable compensation in any of his or her last five (5) fiscal
years of employment is greater than the member's creditable compensation from
the previous fiscal year multiplied by 110 percent, the retirement systems
shall determine that an annual increase in the member's creditable compensation
greater than ten (10) percent has occurred.
(b) For purposes of performing the
calculations in paragraph (a) of this subsection, the member's creditable
compensation shall be annualized by dividing the member's creditable
compensation for the fiscal year by the number of months of service credit, and
multiplying by twelve (12).
(2) If the retirement systems determine that
the member received annual increases in creditable compensation greater than
ten (10) percent over his or her last five (5) fiscal years of employment, the
retirement systems shall send written notice to the member's last participating
employer of the retirement systems' determination that the member has
experienced annual increases in creditable compensation greater than ten (10)
percent over the member's last five (5) fiscal years of employment, and the
amount of the additional actuarial cost to the retirement systems attributable
to the increases.
(3) If the
employer believes that the annual increases in creditable compensation greater
than ten (10) percent over the member's last five (5) fiscal years of
employment was due to a bona fide promotion or career advancement, the employer
shall file a Form 6481, Employer Request for Post-Determination of Bona Fide
Promotion or Career Advancement, for a determination that the annual increases
in creditable compensation greater than ten (10) percent over the member's last
five (5) fiscal years of employment were due to a bona fide promotion or career
advancement. The Form 6481 shall be filed within sixty (60) days of the date on
the notice. If the retirement systems had previously provided a determination
that a change in position or hiring of the member would be a bona fide
promotion or career advancement, the employer shall submit the determination
and provide documentation that the increase in creditable compensation for that
fiscal year was due to the employer implementing the proposed change in
position or hiring.
(4) The employer
shall provide any additional information requested by the retirement
systems.
(5) The retirement systems
may require the employer to make certifications regarding the information and
documentation submitted.
(6) In
determining if a change in position or hiring was a bona fide promotion or
career advancement, the retirement systems shall consider the factors listed in
KRS
61.598(1)(a).
(7) The retirement systems shall issue a
final administrative decision in writing informing the employer whether the
annual increases in creditable compensation greater than ten (10) percent over
the member's last five (5) fiscal years of employment were due to a bona fide
promotion or career advancement.
(8) If the employer fails to submit a Form
6481, Employer Request for Post-Determination of Bona Fide Promotion or Career
Advancement, within sixty (60) days of the date on the notice, the employer
shall pay the additional actuarial cost to the retirement systems attributable
to annual increases in creditable compensation greater than ten (10) percent
over the member's last five (5) fiscal years of employment.
(9) If the employer disagrees with the final
administrative decision by the retirement systems, the employer shall file a
written request for an administrative hearing pursuant to KRS Chapter 13B
within thirty (30) days of the date on the final administrative decision. The
hearing shall be limited to the issue of whether the retirement systems
correctly determined that the annual increases in the member's creditable
compensation greater than ten (10) percent were not due to a bona fide
promotion or career advancement.
(10) If the employer fails to file a written
request for administrative hearing within thirty (30) days of the date on the
final administrative decision, the employer shall pay the additional actuarial
cost to the retirement systems attributable to annual increases in creditable
compensation greater than ten (10) percent over the member's last five (5)
fiscal years of employment.
(11)
The retirement systems shall issue an invoice to the last participating
employer representing the actuarial cost to the retirement systems attributable
to annual increases in creditable compensation greater than ten (10) percent
over the member's last five (5) fiscal years of employment. The employer may
request that the retirement systems allow the employer to pay the cost over a
period, not to exceed one (1) year, without interest and the retirement systems
shall establish a payment plan for the employer.
(12) If the member was employed by more than
one (1) participating employer when the member retired, the actuarial cost to
the retirement systems attributable to annual increases in creditable
compensation greater than ten (10) percent over the member's last five (5)
fiscal years of employment shall be divided equally among the member's last
participating employers.
(13) An
employer who is required to pay the additional actuarial cost pursuant to
KRS
61.598 shall be treated as a participating
employer in the system to which the employer is required to pay the additional
actuarial cost solely for purposes of making the payment required pursuant to
KRS
61.598.
Section 8.
(1) For members retiring on or after January
1, 2018, the retirement systems shall determine if annual increases in a
member's creditable compensation greater than ten (10) percent occurred over
the member's last five (5) fiscal years of employment.
(a) For each of the member's last five (5)
fiscal years of employment, the retirement systems shall multiply the member's
creditable compensation for the previous fiscal year by 110 percent. If the
member's creditable compensation in any of his or her last five (5) fiscal
years of employment is greater than the member's creditable compensation from
the previous fiscal year multiplied by 110 percent, the retirement systems
shall determine that an annual increase in the member's creditable compensation
greater than ten (10) percent has occurred.
(b) The fiscal year immediately preceding the
member's last five (5) fiscal years shall be used for comparison to determine
if an increase in creditable compensation greater than ten (10) percent
occurred in the initial fiscal year of the member's last five (5) fiscal
years.
(c) For purposes of
performing the calculations in paragraph (a) of this subsection, the member's
creditable compensation shall be annualized by dividing the member's creditable
compensation for the fiscal year by the number of months of service credit, and
multiplying by twelve (12).
(2) The member shall receive a refund of all
pre-tax and post-tax member contributions and interest directly attributable to
the reduction in creditable compensation.
(a)
Pre-tax member contributions shall be refunded to the member by the employer
who picked-up the contributions.
(b) Post-tax member contributions shall be
refunded to the member directly from the retirement systems.
(c) Interest earned on pre-tax and post-tax
member contributions shall be refunded to the member directly from the
retirement systems.
Section
9.
(1) If the retirement systems
determine that the member received annual increases in creditable compensation
greater than ten (10) percent over the member's last five (5) fiscal years of
employment, the retirement systems shall send the member's employer the Form
6487, Request for Member Pension Spiking Exemption Amounts.
(a) Pursuant to
KRS
16.645,
61.675,
and
78.545,
the employer shall furnish the information required by the retirement systems
in the discharge of its duties. The employer shall complete the Form 6487 in
its entirety and provide supporting documentation.
(b) The employer shall submit a completed
Form 6487 at the retirement office within sixty (60) days from the date the
Form 6487 was mailed. If the employer fails to submit a completed Form 6487
within that sixty (60) day time period, Kentucky Retirement Systems shall issue
a final administrative decision and provide adjustment correspondence to the
member.
(2) If the
employer believes that the annual increases in creditable compensation greater
than ten (10) percent over the member's last five (5) fiscal years of
employment was not due to a bona fide promotion or career advancement, a
lump-sum payment for compensatory time, a lump-sum payment made pursuant to
alternate sick leave, leave without pay, overtime attributable to a state or
federally funded grant, or overtime attributable to a state of emergency, the
employer shall indicate on the Form 6487 that none of the listed exemptions are
applicable.
(a) The employer shall report any
increases in creditable compensation directly attributable to a lump-sum
payment for compensatory time, a lump-sum payment made pursuant to alternate
sick leave, or leave without pay during the employer's normal monthly
reporting.
(b) If, upon review of
the Form 6487, the employer believes that adjustments to the reported salaries
are required, then the employer shall make those adjustments during the next
monthly reporting cycle pursuant to
KRS
16.645,
61.675,
and
78.545.
(3) If the employer believes that
the annual increases in creditable compensation greater than ten (10) percent
over the member's last five (5) fiscal years of employment was due to a bona
fide promotion or career advancement, overtime attributable to a state or
federally funded grant, or overtime attributable to a state of emergency, the
employer shall include the salary directly attributable to each exemption in
Part 2 of the Form 6487.
(a) If the employer
believes that any of the salary is directly attributable to a bona fide
promotion or career advancement, the employer shall complete Part 3 of the Form
6487.
(b) The employer shall
provide an explanation and documentation supporting the assertion that the
increase in creditable compensation resulted from a bona fide promotion or
career advancement.
(c) In
determining if a change in position or hiring was a bona fide promotion or
career advancement, the retirement systems shall consider the factors listed in
KRS
61.598(1)(a).
(4) The employer shall provide any
additional information requested by the retirement systems. The retirement
systems may require the employer to make certifications regarding the
information and documentation submitted.
(5) If the increases in creditable
compensation are not directly attributable to any of the listed exemptions and
no reporting information needs to be corrected, then any annual increase in
creditable compensation greater than ten (10) percent shall not be used to
calculate the member's retirement allowance.
(6) The retirement systems shall not issue a
refund to the employer for the excess employer contributions. The retirement
systems shall utilize any employer contributions directly attributable to the
reduction in creditable compensation to pay the unfunded liability of the
pension fund in which the retiring member participated.
Section 10. Incorporation by Reference.
(1) The following material is incorporated by
reference:
(a) Form 6481, "Employer Request
for Post-Determination of Bona Fide Promotion or Career Advancement", July
2015; and
(b) Form 6487, "Request
for Member Pension Spiking Exemption Amounts", February 2018.
(2) This material may be
inspected, copied, or obtained, subject to applicable copyright law, at the
Kentucky Retirement Systems, Perimeter Park West, 1260 Louisville Road,
Frankfort, Kentucky 40601, Monday through Friday, from 8 a.m. to 4:30
p.m.
STATUTORY AUTHORITY:
KRS
16.645(18),
61.565,
61.645(9)(e),
61.675,
78.545(33),
78.625