Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
61.645(9)(e)
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
61.645(9)(g) 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,
16.505
to
16.652,
and
78.510
to
78.852
and to conform to federal statutes and regulations. This administrative
regulation concerns the administration of testing contribution and benefit
limits in accordance with
26
U.S.C. Section 415.
Section 1. Definitions.
(1) "Fiscal year" is defined by
KRS
16.505(32),
61.510(19),
and
78.510(19).
(2) "415(b) limit" means to the limitation on
benefits established by
26
U.S.C. 415(b).
(3) "415(c) limit" means the limitation on
annual additions established by
26
U.S.C. 415(c).
Section 2. The "fiscal year" shall
be the limitation year as set out in
26
U.S.C. Section 415 for determining
contribution and benefit limits in the plans administered by the Kentucky
Retirement Systems.
Section 3. This
administrative regulation shall apply to all plans administered by Kentucky
Retirement Systems. Subject to the provisions of this administrative
regulation, benefits paid from, and employee contributions made to, these plans
shall not exceed the maximum benefits and the maximum annual addition,
respectively, as applicable under
26
U.S.C. 415.
Section 4. Participation in Other Qualified
Plans: Aggregation of Limits. The 415(b) limit with respect to any member who
at any time has been a member in any other defined benefit plan as defined in
26 U.S.C.
414(j) maintained by the
member's employer in a KRS plan shall apply as if the total benefits payable
under all those defined benefit plans in which the member has been a member
were payable from one (1) plan.
Section
5. The 415(c) limit with respect to any member who at any time has
been a member in any other defined contribution plan as defined in
26 U.S.C.
414(i) maintained by the
member's employer in a KRS plan shall apply as if the total annual additions
under all those defined contribution plans in which the member has been a
member were payable from one (1) plan.
Section
6. Basic 415(b) Limitation. On and after January 1, 1995, a member
shall not receive an annual benefit that exceeds the dollar amount specified in
26
U.S.C. 415(b)(1)(A), subject
to the applicable adjustments in
26
U.S.C. 415(b) and subject to
any additional limits that are specified in this section. A member's annual
benefit payable in any limitation year from a KRS plan shall not be greater
than the limit applicable at the annuity starting date, as increased in
subsequent years pursuant to
26
U.S.C. 415(d) and 26 C.F.R.
1.415(d)-1.
Section 7. Definition
of Annual Benefit. For purposes of
26
U.S.C. 415(b), the "annual
benefit" means a benefit payable annually in the form of a straight life
annuity (with no ancillary benefits) without regard to the benefit attributable
to after-tax employee contributions (except pursuant to
26
U.S.C. 415(n)) and to
rollover contributions (as defined in
26
U.S.C. 415(b)(2)(A)) . The
"benefit attributable" shall be determined in accordance with 26 C.F.R.
1.415(b)-1(b)(2).
Section 8.
Adjustments to Basic 415(b) Limitation for Form of Benefit.
(1) If the benefit under a KRS plan is other
than the form specified in Section 6 of this administrative regulation, then
the benefit shall be adjusted so that it is the equivalent of the annual
benefit, using factors prescribed in 26 C.F.R. 1.415(b)-1(c).
(2) If the form of benefit without regard to
the automatic benefit increase feature is not a straight life annuity or a
qualified joint and survivor annuity, then subsection (1) of this section shall
be applied by either reducing the section 415(b) limit applicable at the
annuity starting date or adjusting the form of benefit to an actuarially
equivalent amount determined using the assumptions specified in Treasury
Regulation Section 1.415(b)-1(c)(2)(ii) that takes into account the additional
benefits under the form of benefit as follows:
(a) For a benefit paid in a form to which
26
U.S.C. 417(e)(3) does not
apply a monthly benefit, the actuarially equivalent straight life annuity
benefit that is the greater of (or the reduced 415(b) limit applicable at the
annuity starting date which is the "lesser of" when adjusted in accordance with
the following assumptions):
1. The annual
amount of the straight life annuity (if any) payable to the member under the
KRS plan commencing at the same annuity starting date as the form of benefit to
the member; or
2. The annual amount
of the straight life annuity commencing at the same annuity starting date that
has the same actuarial present value as the form of benefit payable to the
member, computed using a five (5) percent interest assumption (or the
applicable statutory interest assumption), and:
a. On or before December 31, 2008, the
applicable mortality tables described in Treasury Regulation Section
1.417(e)-1(d)(2) (Revenue Ruling 2001-62 or any subsequent Revenue Ruling
modifying the applicable provisions of Revenue Ruling 2001-62); or
b. On or after January 1, 2009, the
applicable mortality tables described in
26
U.S.C. 417(e)(3)(B), (Notice
2008-85 or any subsequent Internal Revenue Service guidance implementing
26
U.S.C. 417(e)(3)(B)) ;
or
(b) For a
benefit paid in a form to which
26
U.S.C. 417(e)(3) applies a
lump sum benefit, the actuarially equivalent straight life annuity benefit that
is the greatest of (or the reduced 415(b) limit applicable at the annuity
starting date which is the "least of" when adjusted in accordance with the
following assumptions):
1. The annual amount
of the straight life annuity commencing at the annuity starting date that has
the same actuarial present value as the particular form of benefit payable,
computed using the interest rate and mortality table, or tabular factor,
specified in the KRS plan for actuarial experience;
2. The annual amount of the straight life
annuity commencing at the annuity starting date that has the same actuarial
present value as the particular form of benefit payable, computed using a 5.5
percent interest assumption (or the applicable statutory interest assumption),
and:
a. On or before December 31, 2008, the
applicable mortality tables for the distribution under Treasury Regulation
Section 1.417(e)-1(d)(2) (the mortality table specified in Revenue Ruling
2001-62 or any subsequent Revenue Ruling modifying the applicable provisions of
Revenue Ruling 2001-62); or
b. On
or after January 1, 2009, the applicable mortality tables described in
26
U.S.C. 417(e)(3)(B) (Notice
2008-85 or any subsequent Internal Revenue Service guidance implementing
26
U.S.C. 417(e)(3)(B)) ;
or
3. The annual amount
of the straight life annuity commencing at the annuity starting date that has
the same actuarial present value as the particular form of benefit payable
(computed using the applicable interest rate for the distribution under
Treasury Regulation section 1.417(e)-1(d)(3) (the thirty (30) year Treasury
rate (prior to January 1 2007, using the rate in effect for the month prior to
retirement, and on and after January 1, 2007, using the rate in effect for the
first day of the plan year with a one (1) year stabilization period)); and:
a. On or before December 31, 2008, the
applicable mortality tables for the distribution under Treasury Regulation
Section 1.417(e)-1(d)(2) (the mortality table specified in Revenue Ruling
2001-62 or any subsequent Revenue Ruling modifying the applicable provisions of
Revenue Ruling 2001-62), divided by 1.05; or
b. On or after January 1, 2009, the
applicable mortality tables described in
26
U.S.C. 417(e)(3)(B) (Notice
2008-85 or any subsequent Internal Revenue Service guidance implementing
26
U.S.C. 417(e)(3)(B)) divided
by 1.05.
Section 9. Benefits Not Taken into Account
for 415(b) Limit.
(1) For purposes of this
administrative regulation, the following benefits shall not be taken into
account in applying these limits:
(1) Any
ancillary benefit which is not directly related to retirement income
benefits;
(2) That portion of any
joint and survivor annuity and that constitutes a qualified joint and survivor
annuity;
(3) Any other benefit not
required under
26
U.S.C. 415(b)(2) and 26
C.F.R. 1.415(b)-1 to be taken into account for purposes of the limitation of
26
U.S.C.
415(b)(1).
Section 10. Other Adjustments in
415(b) Limitation.
(1) If the member's
retirement benefits become payable before age sixty-two (62), the limit
prescribed by this section shall be reduced in accordance with 26 C.F.R.
1.415(b)-1(d), so that the limit (as so reduced) equals an annual straight life
benefit (when the retirement income benefit begins) which is equivalent to a
$160,000 (as adjusted) annual benefit beginning at age sixty-two
(62).
(2) If the member's benefit
is based on at least fifteen (15) years of service as a full-time employee of
any police or fire department or on fifteen (15) years of military service, the
adjustments provided for in subsection (1) of this section shall not
apply.
(3) The reductions provided
for in subsection (1) of this section shall not apply to preretirement
disability benefits or preretirement death benefits.
Section 11. Less than Ten (10) Years of
Participation. The maximum retirement benefits payable to any member who has
completed less than ten (10) years of participation in a system shall be the
amount determined under Section 6 of this administrative regulation as adjusted
under Sections 8 or 10 of this administrative regulation multiplied by a
fraction, the numerator of which is the number of the member's years of service
and the denominator of which is ten (10). The reduction provided by this
section shall not reduce the maximum benefit below ten (10) percent of the
limit determined without regard to this section. The reduction provided by this
section shall not apply to preretirement disability benefits or preretirement
death benefits.
Section 12. $10,000
Limit Less than Ten (10) Years of Service. Notwithstanding anything in this
administrative regulation to the contrary, the retirement benefit payable with
respect to a member shall be deemed not to exceed the limit set forth in this
section if the benefits payable, with respect to the member under a KRS plan
and under all other qualified defined benefit pension plans to which the
member's employer contributes, do not exceed $10,000 for the applicable
limitation year and for any prior limitation year and the employer has not at
any time maintained a qualified defined contribution plan in which the member
participated. If the member has completed less than ten (10) years of service
with the employer, the limit under this section shall be a reduced limit equal
to $10,000 multiplied by a fraction, the numerator of which is the number of
years of service the member has and the denominator of which is ten
(10).
Section 13. Effect of COLA
without a Lump Sum Component on 415(b) Testing. Effective on and after January
1, 2003, for purposes of applying the 415(b) limit to a member with no lump sum
benefit, the following shall apply:
(1) A
member's applicable 415(b) limit shall be applied to the member's annual
benefit in the member's first limitation year without regard to any automatic
cost of living adjustments;
(2) To
the extent that the member's annual benefit equals or exceeds the Limit, the
member shall not be eligible for cost of living increases from the funds
created by
KRS
16.510,
61.515,
78.520,
until the time that the benefit plus the accumulated increases are less than
the 415(b) limit; and
(3)
Thereafter, in any subsequent limitation year, a member's annual benefit,
including any automatic cost of living increases, shall be tested under the
then applicable 415(b) limit including any adjustment to the
26
U.S.C. 415(b)(1)(A) dollar
limit under
26
U.S.C. 415(d), and 26 C.F.R.
1.415(b)-1(d). The provisions of this section shall not prevent the member
receiving benefits from the funds created by
KRS
16.568,
61.663,
and
78.652.
Section 14. Effect of COLA with a
Lump Sum Component on 415(b) Testing. On and after January 1, 2009, with
respect to a member who receives a portion of the member's annual benefit in a
lump sum, a member's applicable limit shall be applied taking into
consideration cost of living increases as required by
26
U.S.C. 415(b) and 26 C.F.R.
1.415(b)-1.
Section 15. 415(c)
Limit. After-tax member contributions or other annual additions with respect to
a member shall not exceed the lesser of $40,000 (as adjusted pursuant to
26
U.S.C. 415(d)) or 100
percent of the member's compensation.
(1)
Annual additions shall mean the sum (for any year) of employer contributions to
a defined contribution plan, post-tax member contributions, and forfeitures
credited to a member's individual account. Member contributions shall be
determined without regard to rollover contributions and to picked-up employee
contributions that are paid to a defined benefit plan.
(2) For purposes of applying the 415(c)
limits only and for no other purpose, the definition of compensation if
applicable shall be compensation actually paid or made available during a
limitation year, except as noted in subsection (3) of this section and as
permitted by Treasury Regulation Section 1.415(c)-2, or successor regulation;
except that member contributions picked up under
26 U.S.C.
414(h) shall not be treated
as compensation.
(3) Unless another
definition of compensation that is permitted by Treasury Regulation Section
1.415(c)-2, or successor regulation, is specified by a KRS plan, compensation
shall be defined as wages within the meaning of
26
U.S.C. 3401(a) and all other
payments of compensation to an employee by an employer for which the employer
is required to furnish the employee a written statement under
26 U.S.C.
6041(d),
6051(a)(3),
and
6052
and shall be determined without regard to any rules under
26
U.S.C. 3401(a) that limit
the remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for agricultural
labor in
26
U.S.C. 3401(a)(2)) .
(a) However, for limitation years beginning
on and after January 1, 1998, compensation shall also include amounts that
would otherwise be included in compensation but for an election under
26 U.S.C.
125(a),
402(e)(3),
402(h)(1)(B),
402(k),
or
457(b).
For limitation years beginning on and after January 1, 2001, compensation shall
also include any elective amounts that are not includible in the gross income
of the employee by reason of
26 U.S.C.
132(f)(4).
(b) For limitation years beginning on and
after January 1, 2009, compensation for the limitation year shall also include
compensation paid by the later of two and one-half (2 1/2) months after an
employee's severance from employment or the end of the limitation year that
includes the date of the employee's severance from employment if:
1. The payment is:
a. Regular compensation for services during
the employee's regular working hours;
b. Compensation for services outside the
employee's regular working hours, such as overtime or shift differential;
or
c. Commissions, bonuses, or other
similar payments; and
2.
Absent a severance from employment, the employee would have been able to use
the payments (including unused accrued bona fide sick, vacation or other leave)
if employment had continued.
(c) Any payments not described in paragraph
(b) of this subsection shall not be considered compensation if paid after
severance from employment, even if they are paid within two and one half (2
1/2) months following severance from employment, except for payments to the
individual who does not currently perform services for the employer by reason
of qualified military service (within the meaning of
26 U.S.C.
414(u)(1)) to the extent
these payments do not exceed the amounts the individual would have received if
the individual had continued to perform services for the employer rather than
entering qualified military service. An employee who is in qualified military
service (within the meaning of
26 U.S.C.
414(u)(1)) shall be treated
as receiving compensation from the employer during the period of qualified
military service equal to:
1. The compensation
the employee would have received during the period if the employee were not in
qualified military service, determined based on the rate of pay the employee
would have received from the employer but for the absence during the period of
qualified military service; or
2.
If the compensation the employee would have received during the period was not
reasonably certain, the employee's average compensation from the employer
during the twelve (12) month period immediately preceding the qualified
military service (or, if shorter, the period of employment immediately
preceding the qualified military service).
(d) Back pay, within the meaning of Treasury
Regulation section 1.415(c)-2(g)(8), shall be treated as compensation for the
limitation year to which the back pay relates to the extent the back pay
represents wages and compensation that would otherwise be included under this
definition.
Section
16. Service Purchases Under Section 415(n).
(1) Effective for permissive service credit
contributions made in limitation years beginning after December 31, 1997, if a
member makes one (1) or more contributions to purchase permissive service
credit under a KRS plan, then the requirements of
26
U.S.C. 415(n) shall be
treated as met only if:
(a) The requirements
of
26
U.S.C. 415(b) are met,
determined by treating the accrued benefit derived from all these contributions
as an annual benefit for purposes of the 415(b) limit; or
(b) The requirements of
26
U.S.C. 415(c) are met,
determined by treating all these contributions as annual additions for purposes
of the 415(c) limit.
(2)
For purposes of applying this section, a KRS plan shall not fail to meet the
reduced limit under
26
U.S.C. 415(b)(2)(C) solely
by reason of this section and shall not fail to meet the percentage limitation
under
26
U.S.C. 415(c)(1)(B) solely
by reason of this section.
(3)
(a) For purposes of this section the term
"permissive service credit" shall mean service credit:
1. Recognized by a KRS plan for purposes of
calculating a member's benefit under a KRS plan;
2. Which the member has not received under a
KRS plan; and
3. Which the member
may receive only by making a voluntary additional contribution, in an amount
determined under a KRS plan, which does not exceed the amount necessary to fund
the benefit attributable to the service credit.
(b) Effective for permissive service credit
contributions made in limitation years beginning after December 31, 1997, the
term may include service credit for periods for which there is no performance
of service, and, notwithstanding paragraph (a)2 of this subsection, may include
service credited in order to provide an increased benefit for service credit
which a member is receiving under a KRS plan.
(4) The KRS plan shall fail to meet the
requirements of this section if:
(a) More than
five (5) years of nonqualified service credit are taken into account for
purposes of this section; or
(b)
Any nonqualified service credit is taken into account under this section before
the member has at least five (5) years of participation under a KRS
plan.
(5) For purposes
of subsection (4) of this section, effective for permissive service credit
contributions made in limitation years beginning after December 31, 1997, the
term "nonqualified service credit" shall mean permissive service credit other
than that allowed with respect to:
(a) Service
as an employee of the Government of the United States, any state or political
subdivision thereof, or any agency or instrumentality of any of the foregoing
(other than military service or service for credit which was obtained as a
result of a repayment described in
26
U.S.C. 415(k)(3))
;
(b) Service as an employee (other
than as an employee described in paragraph (a) of this subsection) of an
education organization described in
26 U.S.C.
170(b)(1)(A)(ii) which is a
public, private, or sectarian school which provides elementary or secondary
education (through grade 12), or a comparable level of education, as determined
under the applicable law of the jurisdiction in which the service was
performed;
(c) Service as an
employee of an association of employees who are described in paragraph (a) of
this subsection; or
(d) Military
service (other than qualified military service under
26 U.S.C.
414(u)) recognized by the
KRS plan.
(6) For
service described in subsection (5)(a), (b), or (c) of this section, the
service shall be nonqualified service if recognition of the service would cause
a member to receive a retirement benefit for the same service under more than
one plan.
(7) For a
trustee-to-trustee transfer after December 31, 2001, to which
26 U.S.C.
403(b)(13)(A) or
457(e)(17)(A)
applies (without regard to whether the transfer is made between plans
maintained by the same employer):
(a) The
limitations of subsection (4) shall of this section shall not apply in
determining whether the transfer is for the purchase of permissive service
credit; and
(b) The distribution
rules applicable under federal law to a KRS plan shall apply to these amounts
and any benefits attributable to these amounts.
(8) For an eligible member, the 415(c) limit
shall not be applied to reduce the amount of permissive service credit which
may be purchased to an amount less than the amount which was allowed to be
purchased under the terms of a KRS plan as in effect on August 5, 1997. For
purposes of this subsection an eligible member shall be an individual who first
became a member in a KRS plan before January 1, 1998.
Section 17. Modification of Contributions for
415(c) and 415(n) Purposes. The department may modify a request by a member to
make a contribution to a KRS plan if the amount of the contribution would
exceed the limits provided in Section 415 by using the following methods:
(1) If the law requires a lump sum payment
for the purchase of service credit, Kentucky Retirement Systems may establish a
periodic payment plan for the member to avoid a contribution in excess of the
limits under
26
U.S.C. 415(c) or
415(n).
(2) If payment pursuant to subsection (1) of
this section will not avoid a contribution in excess of the limits imposed by
26
U.S.C. 415(c) or
415(n),
Kentucky Retirement Systems may either reduce the member's contribution to an
amount within the limits of those sections or refuse the member's
contribution.
Section
18. Repayments of Cashouts. Any repayment of contributions
(including interest thereon) to the KRS plan with respect to an amount
previously refunded upon a forfeiture of service credit under the KRS plan or
another governmental plan maintained by the State or a local government within
the state shall not be taken into account for purposes of the 415(b) or (c)
limits.
STATUTORY AUTHORITY:
KRS
61.645(9)(e)