How Is a Partial Lump-Sum Option Calculated?

When you retire, you can take part of your retirement benefit in an up-front lump sum. This option provides a way for you to receive a lump-sum payment at retirement along with a reduced monthly benefit for the rest of your life. You choose the percentage up to 50 percent, in 10 percent increments.

A common misconception is that a PLSO is a return of a member’s contributions. In fact, a PLSO can be larger than the amount of your actual contributions. So how is a PLSO calculated? The lump-sum is based on a percentage of the “actuarial present value” of your benefit at retirement.

Actuarial present value is a value determined at retirement for all monthly benefits that are likely to be paid to you in the future, based on the average life expectancy for your age. In other words, if all the monthly benefits that you are expected to receive before you die are consolidated, that is basically the present value. Let’s look at an example.

Retirement Benefit and PLSO Example

Dan is a KPERS member retiring at age 62. He has worked 30 years for a state agency and has a final average salary of $35,000. His KPERS retirement benefits are based on the following formula:
Final average salary x statutory multiplier x years of service