Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
16.645(19),
61.373,
61.377,
61.552(14),
61.552(24),
61.575,
78.545(34),
26 U.S.C.
414(h),
415,
29 U.S.C. 28, 38 U.S.C. 43
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
61.645(9)U(e) authorizes the
Board of Trustees of Kentucky Retirement Systems to promulgate all
administrative regulations necessary or proper in order to carry out the
provisions of
KRS
61.515 to
61.705,
16.510
to
16.652,
and
78.520
to
78.852.
KRS
61.552(14) and
61.552(24)
permits an employee participating in the Kentucky Retirement Systems to
purchase service credit by payroll deducted installments. This administrative
regulation establishes the process and forms related to this option, and
provides for the preservation of installment purchases for military personnel
called into service.
Section 1.
Installment payment plans shall be allowed for the employees of an agency that
has certified its agreement to deduct and remit installment payments on all
employees participating in the Kentucky Retirement Systems. The certification
shall be made on the "Form 7280, Employer Certification for Installment
Purchase of Service," provided by the retirement system.
Section 2.
(1) The retirement system shall calculate the
monthly payment necessary to pay the cost of the service being
purchased.
(2) The employee may
select a payment period of not less than one (1) year and not more than five
(5) years in accordance with
KRS
61.552(14)(c).
(3) The retirement system shall provide to
the employee a "Form 5708, After Tax Installment Service Agreement" and a "Form
5709, Before Tax Installment Purchase of Service Agreement." The employee shall
complete and return to the retirement systems only one (1), but not both, of
either the Form 5708, After Tax Installment Purchase of Service Agreement or
the Form 5709, Before Tax Installment Purchase of Service Agreement. An
employee shall not enter into more than one (1) installment purchase of service
agreement at any given time.
(4)
The agreement shall contain a space for selecting the payment option and an
authorization for withholding the installment payments.
(5) The agreement shall provide a space for
the employee to indicate the amount of any down payment to be made by the
employee, whether by personal check or rollover or transfer of funds from a
qualified retirement plan or deferred compensation arrangement.
(6) The monthly payment options offered to
the employee on the Form 5708 After Tax Installment Purchase of Service
Agreement shall not exceed the limitations for annual additional contributions
in
26
U.S.C. 415.
Section 3.
(1) Upon receipt of the completed and signed
Form 5708, After Tax Installment Purchase of Service Agreement or the Form
5709, Before Tax Installment Purchase of Service Agreement, the retirement
system shall notify the employee and employer of the amount of the installment
payment, the date the payments shall begin, the date the payments shall end,
and the total payments.
(2) If the
employee is making a down payment by transfer or rollover from a qualified
retirement plan or deferred compensation arrangement, the retirement system
shall notify the employee and employer of the amount of the installment
payments following receipt of the transferred or rolled over funds.
(3) An amortization schedule shall be sent to
the employee.
(4) The Form 5708,
After Tax Installment Purchase of Service Agreement or the Form 5709, Before
Tax Installment Purchase of Service Agreement shall be rejected and a new
calculation of the cost of the purchase shall be performed if:
(a) The Form 5708, After Tax Installment
Purchase of Service Agreement or the Form 5709, Before Tax Installment Purchase
of Service Agreement is not filed at the retirement systems by the deadline for
purchase of the service credit;
(b)
The employee fails to fully and properly complete and sign the Form 5708, After
Tax Installment Purchase of Service Agreement or the Form 5709, Before Tax
Installment Purchase of Service Agreement;
(c) The employee indicates that a down
payment is to be made, but the employee does not include the check or proof of
eligibility to rollover or transfer funds from a qualified retirement plan or
deferred compensation arrangement with the Form 5708, After Tax Installment
Purchase of Service Agreement or Form 5709, Before Tax Installment Purchase of
Service Agreement by the deadline for purchase of the service credit;
or
(d) The employee fails to file a
corrected Installment Purchase of Service Agreement within thirty (30) days of
a recalculation of the cost to purchase.
(5) If the Form 5708, After Tax Installment
Purchase of Service Agreement or Form 5709, Before Tax Installment Purchase of
Service is rejected under subsection (4) of this section, any down payment
shall be refunded to the member or, if rollover or transfer, returned to the
qualified retirement plan or deferred compensation
arrangement.
Section 4.
(1) The employer shall remit the installments
to the retirement system as required by the agreement, but shall be solely
responsible for withholding sufficient amounts from the employee to allow the
payment of the installments.
(2)
The installments shall be remitted to the retirement systems only with the
employer's contribution report. If the employee is not employed twelve (12)
months each year, the agency shall withhold sufficient funds to allow the
agency to remit the required deductions with the contribution reports during
any months in which the employee is not paid.
(3) The retirement system shall not accept
personal checks from the employee as payment for these
deductions.
Section 5.
(1) The amount required to purchase one (1)
month of service credit shall be calculated by dividing the total of the
installment payments due under the agreement by the number of months of service
credit being purchased.
(2) Upon
receipt of installment payments equal to this amount, the retirement system
shall credit one (1) month of service credit to the member's
account.
Section 6.
(1) The employee shall notify the retirement
system in writing if he desires to terminate the Form 5708, After Tax
Installment Purchase of Service Agreement. Upon receipt of the notice from the
employee, the retirement system shall notify the employee and his employer of
the date to stop deductions.
(2)
The employee may request a payoff amount for the Form 5708, After Tax
Installment Purchase of Service Agreement. The employee shall have sixty (60)
days from the payoff date, requested by the employee and agreed to by the
retirement system, to pay the installment agreement in full by lump sum
payment, but the payoff shall be made prior to the effective date of
retirement. At the end of the due date of the contract, the contract shall be
terminated and any payment received shall be credited for service, and any
payment amount remaining that will not purchase the next month of service shall
be refunded.
(3) The Form 5709,
Before Tax Installment Purchase of Service Agreement shall be an irrevocable,
binding agreement if properly and fully completed and signed by the employee,
authorized by the employer, and accepted by the retirement
systems.
Section 7. The
retirement system may refuse to allow new installment agreements for employees
of an agency which fails to deduct and remit the installment payments in
accordance with Sections 1 through 10 of this administrative
regulation.
Section 8.
(1) If an employee leaves a position to
perform military duty as provided in
KRS
61.377, the employer shall advise the
retirement system in writing or by appropriate personnel action that the
employee is on active military duty, and the employee's installment purchase
agreement shall be suspended during the period of military duty for which the
employee does not receive creditable compensation from the employer.
(2) Upon return to employment as provided in
KRS
61.373, the employee's installment purchase
agreement shall not be recalculated and the employer shall resume remitting the
remaining deductions unless the employee terminates the installment agreement
as provided in Section 6 of this administrative regulation.
Section 9. Sick Leave Without Pay.
(1) The employer shall advise the retirement
system in writing or by appropriate personnel action that the employee is on
sick leave without pay, and the installment purchase agreement of an employee
placed on sick leave without pay shall be suspended during the period of sick
leave without pay.
(2) Upon return
to the employer from the period of sick leave without pay, the employee's
installment purchase agreement shall not be recalculated. The employer shall
resume remitting the remaining deductions unless the employee terminates the
installment agreement as provided in Section 6 of this administrative
regulation.
Section 10.
(1)
KRS
61.552(14) allows a member
to purchase and reinstate credit under any of the provisions of
KRS
16.510 to
16.652
and
61.515
to
61.705
and
78.520
to
78.852
in the retirement systems administered by the Kentucky Retirement Systems by
making installment payments in lieu of a lump-sum payment by establishing an
irrevocable employer pick-up of member contributions as described by
26 U.S.C.
414(h)(2).
(2) The cost of the service shall be computed
in the same manner as for a lump-sum payment which shall be the principal; and
interest compounded annually at the actuarial rate in effect when the member
elects to make the purchase shall be added for the period that the installments
are to be made. One (1) year of installment payments shall be made for each
$1,000 or any part thereof of the total cost, except that the total period
allowed for installments shall not be less than one (1) year and shall not
exceed five (5) years. Multiple service purchases shall be combined under a
single installment purchase; however, an employee shall not make more than one
(1) installment purchase at the same time. Once multiple service purchases have
been combined in an installment purchase, the employee shall not separate the
purchases or pay a portion of one (1) of the purchases.
(3) The employer shall pay the installments
by payroll reduction. Upon notification by the retirement systems, the employer
shall report the installment payments either monthly or semimonthly
continuously over each twelve (12) month period at the same time as, but
separate from, regular employer contributions as provided in
105 KAR
1:140, Section 1(1). The employer shall pay the
monthly reductions the employee elects to have applied to purchase service
credit through pick-up contributions. The payroll reductions shall be paid to
the Kentucky Retirement Systems through the normal State Treasurer Office
remittance process, from the same source of funds that is used in paying
earnings to the employees. The employer shall pick-up these contributions by a
corresponding reduction in the cash salary of the employees. These
contributions, although designated as employee contributions, shall be paid by
the employer in lieu of contributions by the employee.
(4) An employee may elect to pay all or part
of any contribution to purchase or reinstate service credit. An employee's
election to purchase or reinstate service credit through pick-up contributions
shall be pursuant to an irrevocable, binding written authorization on a Form
5709, Before Tax Installment Purchase of Service Agreement, which specifies the
amount of the monthly payroll reductions and the period over which the payroll
reductions shall be made. The pick-up shall not commence earlier than the month
after the authorization is signed. The pick-up shall only be applicable to
contributions to the extent the compensation which is reduced for the
contributions is limited to compensation earned for services after the
effective date of the pick-up. Once the employee enters into the irrevocable
agreement, prepayments shall not be accepted for the purchase of the service
that is subject to the irrevocable authorization, and the employee shall not
receive the contributions directly instead of having the contributions
contributed to the retirement system. However, an employee shall not be
prevented from paying any amounts not covered by the authorization with
after-tax dollars, subject to any applicable statutes and rules. An employee
shall not have at any given time more than one (1) irrevocable reduction
authorization.
(5) Contributions
picked up as provided by subsection (4) of this section shall be treated as
tax-deferred employer pick-up contributions pursuant to
26 U.S.C.
414(h). Based upon the
Internal Revenue Service ruling that pursuant to
26 U.S.C.
414(h) these picked up
contributions are not includable in the gross income of the employee until such
time as they are distributed or made available, each employer shall not
withhold federal income taxes on these picked up contributions.
(6) Employee contributions picked-up as
provided by subsection (4) of this section shall be transmitted to the
retirement systems and shall be credited to the employee's account and treated,
for all other purposes, as if the amount were a part of the employee's annual
compensation.
(7) All payroll
reduction authorizations, including the amounts and duration specified, shall
be binding and irrevocable upon the employee's execution of a Form 5709, Before
Tax Installment Purchase of Service Agreement. These reductions shall cease
only after the authorization has expired by its terms or upon any of the
following events:
(a) The employee's death.
If the death of an employee occurs, the employee's beneficiary shall have the
option of paying the remaining amount owed by lump sum payment, using after-tax
dollars, within sixty (60) days of the employee's death. If the balance is not
paid, the beneficiary shall be entitled to receive credit for each one (1)
month period of service purchased. The beneficiary shall receive any
contributions of the employee which had already been made when the employee's
death occurred and which were not used to purchase a one (1) month period of
service credit only pursuant to the normal disbursement procedures for a
member's accumulated contributions under
KRS
61.575.
(b) The termination of the member's
employment. If the member's employment is terminated, the member shall have the
right to pay the remaining amount owed by lump sum payment on or within sixty
(60) days of the member's termination of employment, but prior to the effective
retirement date of the member. If the balance is not paid, the member shall be
entitled to receive credit only for each one (1) month period of service
actually purchased. The member shall receive any contributions which were not
used to purchase one (1) month period of service credit pursuant to the normal
disbursement procedures for a member's accumulated contributions under
KRS
61.575.
(c) For purposes of subsection (7)(a) and (b)
of this section, after-tax contributions shall only be received to the extent
allowed by
26
U.S.C. 415.
(8) If the employee is on military leave or
sick leave without pay, the installment purchase shall cease and shall be
suspended during the period of leave and shall resume without recalculation
upon the employee's return from leave.
(9) The employee shall not receive a return
of the payroll reductions made under Sections 1 through 10 of this
administrative regulation, except pursuant to the normal disbursement
procedures for a member's accumulated contributions under
KRS
61.575.
(10) Payroll reductions under this section
shall not last longer than five (5) years.
(11) The retirement systems shall begin
accepting before tax payroll reduction agreements from employees in February
2003. The earliest effective date for receipt of before tax contributions from
employers shall be those payroll reports due in March 2003. An employee who has
a current post-tax installment purchase of service agreement in place as of
January 31, 2003 may terminate this purchase and make an election under this
section to convert the installment purchase of service agreement to an
irrevocable pretax employer pick-up of contributions before December 31,
2003.
Section 11.
Incorporation by Reference.
(1) The following
material is incorporated by reference:
(a)
"Form 7280, Employer Certification for Installment Purchase of Service,
November 2002," Kentucky Retirement Systems;
(b) "Form 5708, After Tax Installment
Purchase of Service Agreement, June 2003," Kentucky Retirement Systems;
and
(c) "Form 5709, Before Tax
Installment Purchase of Service Agreement, January 2003," Kentucky Retirement
Systems.
(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, Monday through Friday, 8 a.m. to 4:30 p.m.
STATUTORY AUTHORITY:
KRS
61.552(14), (24),
61.645(9)(e)