Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
18A.205,
18A.225,
61.510
to
61.705,
26 U.S.C.
401,
402,
403
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
61.645(9)(e) requires the
Board of Trustees of Kentucky Retirement Systems to promulgate administrative
regulations necessary or proper in order to carry out the provisions of
KRS
61.510 to
61.705.
KRS
61.522(6) authorizes certain
quasi-governmental employers in the Kentucky Employees Retirement System to
cease participation of its nonhazardous employees under the provisions and
requirements of
KRS
61.522(8). The ceased
quasi-governmental employer shall pay the full actuarial cost of benefits
accrued by its current and former nonhazardous employees through June 30, 2021,
except as provided by
KRS
61.522(8)(g) 4.
KRS
61.522(9) requires the Board
to promulgate administrative regulations to administer the provisions of the
statute. This administrative regulation establishes the temporary procedures
and requirements for quasi-governmental employer cessation from participation
in the Kentucky Employees Retirement System pursuant to
KRS
61.522.
Section
1. Definitions.
(1) "Alternative
retirement program" means a plan provided by a ceased quasi-governmental
employer, which meets the qualification requirements of
26 U.S.C.
401(a) or
26 U.S.C.
403(b), is eligible to
receive direct trustee-to-trustee transfers of pre-tax and post-tax
contributions, and does not include a defined benefit plan.
(2) "Ceased employer" means a
quasi-governmental employer who, on or after April 1, 2020, but prior to May 1,
2021, or in the case of university or community college employers it shall be
prior to January 1, 2021, submits a resolution to cease participation in
Kentucky Employees Retirement System ("KERS"), which is accepted by the Board
on or before June 30, 2021.
(3)
"Employer", for the purposes of this administrative regulation, means a
quasi-governmental employer including local and district health departments
governed by KRS Chapter 212, state-supported universities and community
colleges, the Kentucky Higher Education Student Loan Corporation, and any other
agency otherwise eligible to voluntarily cease participating in KERS pursuant
to
KRS
61.522.
(4) "Employer election" means an election by
ceasing employers set forth in the resolution to cease participation in KERS
regarding whether nonhazardous employees hired prior to June 30, 2021, who
began participating in KERS prior to January 1, 2014, will continue to
participate in KERS after June 30, 2021. Nonhazardous employees of employers
who do not elect for their employees to continue participating in KERS will not
accrue additional service credit or benefits with KERS through the ceased
employer after June 30, 2021.
(5)
"Nonhazardous employee" means a regular full-time employee participating in
KERS in a position other than a position classified as hazardous by the board
pursuant to
KRS
61.592.
Section 2.
(1) An employer may request an estimate of
the actuarial cost of ceasing participation in KERS of its nonhazardous
employees prior to December 31, 2019. The request shall be made by completing
the Form 7726, Request for Estimated Cost of Voluntary Cessation from KERS
under
KRS
61.522(8).
(2) Kentucky Retirement Systems (hereafter
"Systems") shall provide the estimate of the cost within sixty (60) days of
receipt of the Form 7726, however, no estimate shall be required to be provided
prior to January 31, 2020.
(3)
Systems shall provide the estimate of the cost based on the information
currently in its database and projecting the service and creditable
compensation of all nonhazardous employees as if they remain employed in a
regular full-time position through June 30, 2020.
(4) The estimated actuarial cost of ceasing
participation shall not be binding on the Systems.
(5) The employer shall not rely on the
estimated actuarial cost of ceasing participation.
(6) Systems shall notify the employer of the
administrative cost to process the Form 7726. The administrative cost shall be
calculated as follows:
(a) If the number of
employees and former employees to be submitted to the actuary for purposes of
determining the estimated actuarial cost of cessation equals one (1) to 100
employees, the administrative cost shall be $1,500.
(b) If the number of employees and former
employees to be submitted to the actuary for purposes of determining the
estimated actuarial cost of cessation equals 101 or more employees, the
administrative cost shall be $4,000.
(7) Systems shall process the Form 7726 after
the employer has remitted its payment for the administrative cost.
Section 3.
(1) The governing body of an employer seeking
to cease participation in KERS through
KRS
61.522(8) shall pass a
resolution to cease participation and submit the resolution to the board on or
after April 1, 2020, but prior to May 1, 2021, or January 1, 2021, in the case
of university or community college employers.
(2) The resolution shall contain the
following statements:
(a) That the employer
has decided to voluntarily cease participation in KERS;
(b) The employer election and acknowledgement
as to whether nonhazardous employees hired prior to June 30, 2021, who began
participating in the Systems prior to January 1, 2014, will, as a result of the
employer election, either continue to participate or cease earning service
credit and benefits after June 30, 2021;
(c) That the employer acknowledges it is
unable to rescind the resolution to cease participation after April 30, 2021,
or after December 31, 2020 in the case of university or community college
employers;
(d) That the employer
acknowledges it is subject to the requirements and restrictions of
KRS
61.522 and this administrative
regulation;
(e) That the employer
acknowledges that in order to cease participation in KERS pursuant to
KRS
61.522(8), the employer
shall pay the actuarial cost of ceasing participation and all administrative
costs associated therewith;
(f)
That the employer agrees to cooperate with the Systems to educate its employees
about the effect of cessation and the employer election on the employees'
retirement accounts and the employees' options regarding their retirement
accounts;
(g) That the employer
shall not mandate, force, or require its employees to take a refund of their
accumulated account balance as defined by
KRS
61.510(41), or retaliate
against its employees who chose not to take refunds of their accumulated
account balance as defined in
KRS
61.510(41); and
(h) That the employer shall hold the
Commonwealth and the Systems, including board members and employees of the
Systems, harmless from damages, attorney's fees and costs from legal claims for
any cause of action brought by any member or retired member of the ceasing
employer related to the cessation of the employer.
(3) The Board shall accept the resolution on
or before June 30, 2021, in order for the employer to cease
participation.
(4) If a resolution
to cease participation in the KERS is not received by the board prior to May 1,
2021, or January 1, 2021 in the case of university or community college
employers, the employer shall continue to participate in the KERS and pay the
full actuarially determined contributions for fiscal years occurring on or
after July 1, 2021.
Section
4.
(1) An employer shall file a
completed Form 7727, Actuarial Study for Quasi-Governmental Employer Cessation
with its resolution on or after April 1, 2020, but prior to May 1, 2021, or
January 1, 2021 in the case of university or community college employers, with
the executive director of the Systems.
(2) The employer shall submit the following
documents with its Form 7727:
(a)
Documentation of the alternative retirement program created by or being created
by the employer for its employees, such as the determination letter issued by
the Internal Revenue Service or a written description of the alternative
retirement program;
(b) The
employer's most recent five (5) audited financial statements and independent
auditor's reports; and
(c) The
employer's most recent five (5) Comprehensive Annual Financial Reports, if
applicable.
(3) The
employer shall submit with its Form 7727, an encrypted electronic file in a
format prescribed by the Systems listing each current and former nonhazardous
employee, employed in a full-time position as defined by
KRS
61.510(21), who was employed
during any period the employer participated in KERS, containing:
(a) Full name;
(b) Last known address;
(c) Date of birth;
(d) Social security number or Systems member
identification number;
(e)
Beginning date of employment;
(f)
Date employment ended, if applicable;
(g) Sick leave balance;
(h) Beginning and ending dates of any active
duty military service when the employee was not employed by the employer filing
the Form 7727, if available; and
(i) Beginning and ending dates of any active
duty military service when the employee was employed by the employer filing the
Form 7727.
Section
5.
(1) The employer shall pay the
administrative costs incurred by the Systems for the actuarial study completed
in accordance with the Form 7727 to determine the final cost, as well as all
other administrative costs incurred for ceasing participation pursuant to
KRS
61.522(3)(a).
(2) The employer shall pay $10,000 as a
deposit with the Form 7727.
(3)
Systems shall place the deposit in a designated account and shall utilize the
funds to pay the administrative costs of processing the employer's Form
7727.
(4) Systems shall charge a
reasonable fee for its administrative costs associated with processing of the
employer's Form 7727 and send an invoice to the employer upon completion of the
actuarial study.
(a) Systems shall apply the
deposit received pursuant to subsection (2) of this section to any
administrative costs incurred by the Systems attributable to the employer's
cessation in accordance with
KRS
61.522(8).
(b) Following the application of the deposit
to the outstanding administrative costs, Systems shall submit an invoice to the
employer for the additional administrative costs and the employer shall pay the
invoice for the remaining administrative costs within thirty (30) days of the
date of the invoice.
(5)
If the total administrative cost is less than the deposit paid by the employer,
Systems shall credit the remaining balance of the deposit to the
employer.
Section 6.
(1) Systems shall attempt to notify each
nonhazardous employee identified on the list provided by the ceased employer
that the employer is ceasing participation pursuant to
KRS
61.522(8).
(2) For those eligible nonhazardous
employees, the Systems shall provide notice informing the employee of the right
to request an irrevocable refund, pursuant to
KRS
61.522(3)(a) 5., of their
accumulated account balance as defined in
KRS
61.510(41) by submitting a
completed Form 1500,
KRS
61.522 60-Day Transfer Request within sixty
(60) days of June 30, 2021 to Kentucky Retirement Systems. The notice shall be
sent no later than June 19, 2021.
(a) Systems
shall send the notice to the active nonhazardous employees listed by the
employer who has filed a Form 7727 on its most recent report required by
KRS
61.675 submitted prior to the date the
notices are mailed.
(b) The
employer shall submit the name and contact information of each nonhazardous
employee it hired between the completion of the Form 7727 and before June 30,
2021, within five (5) days of the date the employee begins working for the
employer.
(c) A Form 1500 submitted
on or before June 30, 2021, shall be void.
(d) A Form 1500 submitted after August 31,
2021, shall be void.
(e) The
employee shall be employed by the employer who has filed a Form 7727 on June
30, 2021, to be eligible to request a refund of his accumulated account balance
pursuant to
KRS
61.522(3)(a) 5.
(f) An employee who submitted Form 1500 to
the Systems may rescind the form by submitting written notice to the Systems on
or before August 31, 2021.
(g) If
an employee requests a refund pursuant to
KRS
61.522(3)(a) 5., the
employee's accumulated account balance shall be transferred to the employer's
alternative retirement program pursuant to this section even if the employee
terminates employment with the employer after June 30, 2021, unless the
employee rescinds the Form 1500 on or before August 31, 2021.
(3)
(a) The employer shall establish an
alternative retirement program on or before August 31, 2021, as provided in
KRS
61.522(3)(a) 5.
(b) The employer shall submit the final plan
documents for its alternative retirement program as well as an affirmative
statement that the alternative retirement program does not include a defined
benefit plan.
(c) The employer
shall submit verification that it has established an alternative retirement
program qualified under
26 U.S.C.
401(a) or
26 U.S.C.
403(b) that is eligible to
receive direct trustee-to-trustee transfers of pre-tax and post-tax
contributions and does not include a defined benefit plan. Systems shall accept
one (1) of the following as verification that the employer has established a
valid alternative retirement program:
1. A
determination letter from the Internal Revenue Service providing that the
alternative retirement program established by the employer is a qualified plan
pursuant to
26 U.S.C.
401(a) or
26 U.S.C.
403(b) capable of accepting
trustee-to-trustee transfers;
2. A
letter from the employer's legal counsel certifying that the alternative
retirement program satisfies the requirements of
26 U.S.C.
401(a) or
26 U.S.C.
403(b) capable of accepting
trustee-to-trustee transfers; or
3.
Other reliable verification as determined by the Systems.
(d) Refunds requested pursuant to
KRS
61.522(3)(a) 5. shall be
transferred to the alternative retirement program established by the ceased
employer by trustee-to-trustee transfer after August 31, 2021.
1. The alternative retirement program shall
accept and separately account for post-tax employee contributions.
2. The ceased employer's legal counsel shall
provide written certification that its alternative retirement program shall
accept and separately account for post-tax employee contributions.
(e) If the ceased employer fails
to establish an alternative retirement program pursuant to paragraph (a) of
this subsection, the refund requests pursuant to
KRS
61.522(3)(a) 5. shall be
void. The employees who filed the refund requests pursuant to
KRS
61.522(3)(a) 5. shall remain
members of the system and shall be included in the full actuarial
cost.
(4) Former
employees of the ceased employer who are currently participating in the State
Police Retirement System, County Employees Retirement System, or Kentucky
Employees Retirement System, due to employment with a participating agency,
shall not be eligible to take a refund of their accumulated account balance
until terminating employment with the current participating employer.
(5) Current employees of the ceased employer
who are also employed by another employer participating in the State Police
Retirement System, County Employees Retirement System, or Kentucky Employees
Retirement System shall not be eligible to take a refund of their accumulated
account balance until terminating employment with the participating
employer.
(6) Current employees of
the ceased employer on June 30, 2021, may request a refund pursuant to
KRS
61.522(3)(a) 5.
(7)
(a)
Former employees of the ceased employer who are not participating in State
Police Retirement System, County Employees Retirement System, or Kentucky
Employees Retirement System shall not be eligible to take a refund of their
accumulated account balance pursuant to
KRS
61.522(3)(a) 5.
(b) The account balance of former employees
of the ceased employer who are not participating in State Police Retirement
System, County Employees Retirement System, or Kentucky Employees Retirement
System, but who were employed with the ceased employer on June 30, 2021, and
who submitted a valid Form 1500 pursuant to this section, shall be transferred
to the employer's alternative retirement program unless the employee rescinds
the Form 1500 on or before August 31, 2021.
(8) The four (4) percent employer pay credit
and applicable interest accrued shall vest as of June 30, 2021, for those
nonhazardous employees who began participating on or after January 1, 2014, and
who request a refund pursuant to
KRS
61.522(3)(a)
5.
Section 7.
(1)
(a) The
employer shall continue to file reports and remit employer contributions on all
employees in accordance with
KRS
61.675 and
105 KAR
1:140 for creditable compensation paid through June
30, 2021.
(b) If the employer
elects for nonhazardous employees to continue participation through the
employer election, the employer shall continue to file reports in accordance
with
KRS
61.675 and
105 KAR
1:140. In addition, the employer shall continue to
report all applicable pick up installments for pre-tax service purchases
pursuant to
KRS
61.552(14)(c). However,
pursuant to
KRS
61.522(8)(d) 2., the
employer shall not remit employer contributions for nonhazardous employees
after June 30, 2021, as those amounts are factored into the cost calculation
established by
KRS
61.522(7).
(c) The employer shall continue to remit
employer contributions for all hazardous employees.
(2)
(a) If
a member who is an employee of a ceased employer files for disability
retirement benefits but does not establish a last day of paid employment prior
to June 30, 2021, and does not continue participation, the Systems shall use
June 30, 2021, as the member's last day of paid employment.
(b) If a member who is an employee of a
ceased employer continues participation because of the employer election and
files for disability retirement benefits, the member's last day of paid
employment shall be established pursuant to
KRS
61.510(32).
(3)
(a) The ceased employer shall continue to
pick-up payments for installment purchase of service for any employee who is
purchasing service pursuant to
KRS
61.552(14) and
105 KAR
1:150 through June 30, 2021.
(b) An employee that ceases participation in
KERS on June 30, 2021, shall have sixty (60) days from the date of cessation to
pay in full any outstanding balance on the installment purchase agreement
pursuant to
KRS
61.552(14) and
105 KAR
1:150.
Section 8.
(1) Employees of a ceased employer shall
comply with the provisions of
KRS
61.590,
61.625
and
61.637.
(2) Employees of a ceased employer shall
terminate employment with all participating employers of the State Police
Retirement System, County Employees Retirement System, Kentucky Employees
Retirement System and the ceased employer prior to retiring pursuant to
KRS
61.590 or taking a refund pursuant to
KRS
61.625.
(3)
(a)
Employees of a ceased employer shall comply with
KRS
61.637 and
105
KAR 1:390 after retirement.
(b) The ceased employer shall certify that
the employee seeking to retire or take a refund is terminating employment or
has terminated employment with no prearranged agreement to return to work for
the ceased employer.
Section
9.
(1) Employees shall receive
service credit for sick leave accrued pursuant to
KRS
61.546 as of June 30, 2021.
(a) If the ceased employer participates in a
sick leave program established in
KRS
61.546 the employer shall report to the
Systems the number of hours of each employee's accumulated sick leave as of
June 30, 2021.
(b) Systems shall
credit the months of sick leave service reported pursuant to this section to
the employee's total service credit to determine the ceased employer's
actuarial cost.
(c) If the ceased
employer elects that nonhazardous employees hired prior to June 30, 2021, who
began participating in the Systems prior to January 1, 2014, will continue
participation pursuant to
KRS
61.522(8)(d), then those
employees shall continue to receive service credit for sick leave accrued
pursuant to
KRS
61.546 after June 30, 2021, while
participating through the ceased employer.
(2)
(a)
Systems shall credit the months of military service pursuant to
KRS 61.555 prior to
June 30, 2021, and include the months in the calculation of the ceased
employer's actuarial cost.
(b) If
the ceased employer elects that nonhazardous employees hired prior to June 30,
2021, who began participating in the Systems prior to January 1, 2014, will
continue participation pursuant to
KRS
61.522(8)(d), then those
employees shall continue to be able to obtain military service pursuant to
KRS 61.555 if
otherwise eligible.
Section
10.
(1) The ceased employer
shall pay or otherwise resolve all its invoices and correct all reporting in
accordance with
KRS
61.675 and
105 KAR
1:140 by July 25, 2021.
(2)
(a)
Systems shall provide the ceased employer with the amount of the full actuarial
cost by sending a notice of actuarial cost and the report of the actuary to the
employer.
(b) Systems shall provide
the ceased employer with the payment amounts required if the ceased employer
elects to pay the actuarial cost in installment payments.
(3)
(a) The
ceased employer shall elect on the Form 7728, Payment Election for
Quasi-Governmental Employer Cessation whether to pay the actuarial cost of
cessation by lump-sum payment or in installment payments not to exceed thirty
(30) years from June 30, 2021.
(b)
The Form 7728 shall be received in the retirement office on or before thirty
(30) days after the date on which the Systems mailed the notice of actuarial
cost and the report of the actuary to the ceased employer.
(c) A ceased employer intending to pay the
full actuarial cost by lump-sum shall submit with the Form 7728 documentation
of the source of the funds the employer intends to use to pay the full
actuarial cost.
(d) A ceased
employer intending to pay the actuarial cost by installment payment plan shall
submit with the Form 7728 documentation of:
1.
Source of funds to pay the installment payments;
2. List of real property owned by the ceased
employer, including deeds of conveyance, title, all liens or encumbrances on
the real property, and any current written contractual lease or rental
agreement of the real property identified;
3. List of liabilities of the ceased
employer; and
4. Inventory of all
personal property owned by the ceased employer or in which the employer has an
interest that may be used as collateral by the employer, including chattel
paper, deposit accounts, documents, goods covered by documents, instruments,
investment property, letters of credit rights, and money.
(4)
(a) Ceased employers who elect to pay the
full actuarial cost by lump-sum shall make the payment by June 30, 2022,
pursuant to
KRS
61.522(3)(a) 7.
(b) If the lump-sum payment is not received
by the Systems at the retirement office on or before June 30, 2022, then the
ceased employer shall make installment payments and the payment amount shall be
recalculated based upon this adjustment with interest added for fiscal year
2022-2023. The ceased employer shall also remit all outstanding installments
payments.
(c) Systems shall notify
any ceased employer who has not submitted the lump-sum payment on June 21,
2022, of the impending deadline and the consequences of failing to timely
pay.
(5)
(a) If the ceased employer elects to pay the
actuarial cost of cessation in installment payments, the cost shall be financed
by the Systems pursuant to
KRS
61.522(8)(g).
(b) If the ceased employer elects for
nonhazardous employees who began participating in the Systems prior to January
1, 2014, to continue participating in KERS, and the employer is not projected
to pay the full actuarial cost in thirty (30) years, then the Systems shall
adjust the payments so that the full actuarial costs are paid at the end of the
thirty (30) year period.
(c) If the
ceased employer elects for nonhazardous employees who began participating in
the Systems prior to January 1, 2014 to cease participating in KERS, and the
employer is not projected to pay the full actuarial cost in thirty (30) years,
then the employer shall pay the amount financed through the Systems pursuant to
KRS
61.522(8)(g) 1. and no
adjustments shall be made to the monthly payments nor shall additional amounts
be charged after the thirty (30) year period.
(6)
(a)
Interest shall be assigned to the principal amount annually for both lump-sum
and installment payment plans beginning on July 1, 2021. A ceased employer who
elects to pay the actuarial cost by installments may at any time submit
payments towards the remaining balance.
(b) If the employer elects to pay the costs
in installment payments, the annual payments beginning on or after July 1,
2021, including interest will be calculated as a set dollar value and then
divided into monthly installments.
(c) If the ceased employer submits more than
the required payments for a fiscal year, the total cost will be reduced but the
monthly installment amounts will remain unchanged because the monthly amounts
are based upon the set dollar value of the annual payments. Pursuant to
KRS
61.522(8)(g), interest
amounts are separate from total cost and interest and interest attributable to
the actuarial cost will not be calculated until the cost is finalized. However,
any early or additional payments may reduce the number of payments required if
the full actuarial cost is paid in less than thirty (30) years from June 30,
2021.
(7) Payments made
prior to the notice of full actuarial cost shall be credited to the amount and
considered early or additional payments pursuant to (6)(c) of this
section.
Section 11.
(1)
(a) If
a ceased employer elects to make installment payments, the Systems shall submit
invoices to the employer for payments owed, which are not paid through the
normal monthly reports.
(b) The
employer shall remit payment to the Systems by the due date provided on the
invoice.
(2)
(a) If a ceased employer that elected to make
installment payments is delinquent for ninety (90) days or more from the due
date of an outstanding invoice, and the ceased employer elected for
nonhazardous employees with participation dates prior to January 1, 2014, to
continue participating, then the participation of those employees in KERS
through the ceasing employer will be suspended until the ceased employer has
remitted the required payments. The employees shall not earn service credit,
including service credit purchased pursuant to
KRS
61.552, or benefits in KERS through the
ceased employer during the suspension period.
(b) Any employee contributions provided to
the Systems will be held until the ceased employer remits the required
payments.
(3) Systems
shall notify the Finance and Administration Cabinet of any ceased employer that
is delinquent for ninety (90) days or more in making installment payments
pursuant to
KRS
61.675(4)(c).
(4) Systems may file an action in Franklin
Circuit Court to collect delinquent installment payments and attach general
fund appropriations in order to satisfy the payments owed.
Section 12.
(1)
(a)
Current and former employees of the ceased employer shall not be eligible to
purchase service credit pursuant to
KRS
61.552 after June 30, 2021, unless the
current employee has continued participation in KERS because of the employer
election.
(b) A current employee of
a ceased employer continuing participation in KERS because of the employer
election may purchase service credit pursuant to
KRS
61.552 even if that service is related to
employment with the ceased employer.
(2) Former employees shall not be eligible to
purchase service credit related to employment with a ceased employer, pursuant
to
KRS
61.552 after June 30, 2021.
(3) A person eligible to purchase service
credit pursuant to
KRS
61.552 related to employment with the ceased
employer, shall either complete the purchase or enter into a service purchase
agreement with the Systems no later than June 30, 2021 unless the individual is
a current employee of the ceased employer who has continued participation in
KERS because of the employer election.
(4) A person may purchase service credit
pursuant to
KRS
61.552(20) if the service is
not related to employment with the ceased employer, unless the person is a
current employee that has continued participation in KERS because of the
employer election.
(5) A former
employee of a ceased employer who becomes employed with a participating
employer after terminating employment with the ceased employer may purchase
service credit pursuant to
KRS
61.552 that is not related to employment with
a ceased employer.
Section
13. If any due date in this administrative regulation or if an
installment payment falls on a Saturday, Sunday, or day that the Systems is
closed due to state holiday, the due date or time period deadline shall extend
to the close of business of the next business day.
Section 14. Incorporation by Reference.
(1) The following material is incorporated by
reference:
(a) Form 7726, "Request for
Estimated Cost of Voluntary Cessation from KERS under
KRS
61.522(8)," August
2019;
(b) Form 7727, "Actuarial
Study for Quasi-Governmental Employer Cessation", June 2020;
(c) Form 1500, "KRS
61.522 60-Day Transfer Request", November
2019; and
(d) Form 7728, "Payment
Election for Quasi-Governmental Employer Cessation", June 2020.
(2) This material may be
inspected, copied, or obtained, subject to applicable copyright law, at the
Kentucky Retirement Systems, 1260 Louisville Road, Frankfort, Kentucky 40601,
Monday through Friday, 8 a.m. to 4:30 p.m.
STATUTORY AUTHORITY:
KRS
61.522(9),
61.645(9)(e)