Retirement - KP&F
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Guidelines for Sending Documents
Calculating Retirement Benefits
Retirement EligibilityMembers must contribute to KP&F for 12 months before they are able to retire. Retirement benefits can not exceed 80 percent of a member’s final average salary (32 years of KP&F service). Tier I Tier II KP&F grants one quarter of service credit for any time worked in a particular quarter. Any amount of employee contributions in a quarter indicates time worked. When service credit is added up, two remaining quarters will be rounded up to a year. Early Retirement with Reduced Benefits Tier I and Tier II members can retire with reduced benefits at age 50 with 20 years of service credit.
Reduced benefits are calculated according to a member’s actual
age at time of retirement. The rate factor Retirement DateA member’s retirement date is the later of the first day of the month following the last day on the payroll, or the first day of the month after KP&F receives a member’s Application for Retirement Benefit booklet (KPERS-15). A member must be off the payroll of all participating employers on his or her retirement date. Member's Steps to Retire
Guidelines for Sending Documents
Proof of BirthA photocopy of one of the following:
If you are unable to provide proof according to 1-9 above cannot be provided, submit a photocopy of two of the following documents:
Proof of Name ChangeA photocopy of one of the following:
If you are unable to provide proof according to 1-3 above, submit a photocopy of two of the following documents:
Final Average SalaryCalculating Final Average Salary KP&F calculates retirement benefits using a formula set by state law. Final average salary is one of the factors in the formula. If the employee's membership date is on or after July 1, 1993, the final average salary is an average of the three highest of the last five years of service, excluding additional compensation*. If the employee's membership date is before July 1, 1993, the final average salary is an average of the three highest of the last five years of service, including additional compensation*. The Retirement System annualizes earnings to calculate a final average salary. A member’s annual compensation as provided by the employer is divided into four equal quarters. The computer selects from a member’s compensation history the highest 12 quarters, which then forms the basis of final average salary. *Additional Compensation or "add-on pay" is compensation from the employer for unused sick leave, annual leave, etc. KP&F cannot use an early retirement incentive or severance pay as part of add-on pay when calculating final average salary. When add-on pay is included in the final average salary, it is only included in the year before the member's termination date. It is not credited only to the quarter in which it was paid. Guidelines for KP&F affiliates January 1, 1994, and after Prior Service If an agency has KPERS and affiliates for prior service, the employer is bringing all the employee’s KPERS service over as prior service and all the member’s prior service and KP&F participating service will be calculated at 2.5 percent of the member’s final average salary at time of retirement. Future Service Only If an agency has KPERS and affiliates for future service only, the member’s KPERS service remains with KPERS and from affiliation date forward, the member’s service is with KP&F membership. The employee’s KPERS service will be calculated at 1.75 percent at time of retirement and the member’s KP&F service will be calculated at 2.5 percent at time of retirement. These employees, whether their employer affiliated for prior service or future service only, do not get to use the three-year final average salary with additional compensation such as sick and annual leave used in the calculation of their final average salaries. K.S.A. 74-4902(17) specifically states that the membership date for affiliates after January 1, 1994, is the affiliation date. Final Average Salary "Spike" Law Employers sometimes pay a member for accumulated sick leave, vacation or annual leave, severance pay, etc. These payments often increase a member’s final average salary. The "Spike" law places the actuarial liability for certain payments on the participating employer. According to K.S.A. 74-49,126, employers are responsible when add-on payments for accumulated sick leave, vacation or annual leave, severance pay, etc. increase a member’s final average salary by more than 15 percent. The employer must pay the Retirement System a lump sum equal to the actuarial liability for benefits payable because of the amount over 15 percent. The employer may amortize the actuarial payments over a maximum of 15 years. Final Average Salary "Cap" Law K.S.A. 74-4902(9) states that if a member’s compensation used in calculating his or her final average salary is more than 15 percent higher than the preceding year, the amount which exceeds the 15 percent will not be included in compensation. Examples of compensation that are subject to cap:
Member contributions on the amount of such increase that exceeds 15 percent will be returned to the member. Compensation not subject to cap:
Examples of compensation that are not subject to cap
Calculating Retirement BenefitsFinal average salary x 2.5 percent x years of service (up to 32 years) = annual benefit at normal retirement age Example: $35,000 x 2.5 percent x 20 = $17,500 annual benefit You can calculate an estimate online. It will be helpful to have a member’s most-recent annual statement information for reference. You can also download the Benefit Estimate Request form (KPERS-15E), and we can do it for you. KP&F provides up to two estimates per year for each member within five years of retirement. He or she must complete a form for each estimate request. Compensation from regular pay and compensation from sick and annual leave must be reported on separate lines. Incomplete forms will be returned along with a new form to be submitted. Estimates that the Retirement System calculates are “just estimates” and are based on information provided on the request form. Actual retirement benefits are calculated at retirement. If there is a discrepancy between an estimate and the actual monthly benefit amount, the benefit will be paid in accordance with applicable laws and regulations. Retirement OptionsFirst a member must decide whether to receive his or her entire retirement benefit in monthly payments or, at the start of retirement, take part of his or her retirement benefit in an up-front, lump-sum payment and receive the balance of the benefit in reduced monthly payments. A member receives a single lump-sum equal to a given percentage of his or her lifetime benefit’s actuarial present value. The member will then receive the rest of his or her retirement benefit in reduced, regular monthly payments. The PLSO is available in 10, 20, 30, 40 or 50 percent amounts. The percentage a member selects determines the size of the lump sum and the resulting decrease in his or her monthly benefit amount. For example, a 40 percent PLSO payment would result in a single lump-sum payment equal to 40 percent of the actuarial present value of a member’s lifetime benefit, along with a permanent 40 percent reduction in the regular monthly payments. PLSO payments are taxable income under federal law unless directly rolled over into an eligible retirement account. KPERS is required to withhold 20 percent for federal income tax if a member receives the money directly. State taxes may also apply. For additional tax information on the PLSO, contact a tax consultant or review the Internal Revenue Service’s Publication 575, Pension and Annuity Income, available on the IRS web site, www.irs.gov. Qualified Public Safety Employees If a member is a "qualified public safety employee" who ends employment in the calendar year in which he or she is age 50 or older, and receives an eligible rollover distribution, the member will not have to pay the additional 10 percent tax on a payment that is eligible for rollover and paid to the member. A "qualified public safety employee" is an employee of a State or political subdivision of a State (such as a city or county) whose principal duties include services requiring specialized training in the area of police protection, firefighting services, or emergency medical services for an area within the jurisdiction of the State or political subdivision. PLSO and Future Benefit Increases Cost-of-living increases are based on the amount of a member’s monthly benefit. Any future increases would be based on the reduced monthly benefit at the time of the increase. Maximum Monthly Benefit Option Once a member has decided whether or not to take the PLSO, KP&F will establish a maximum monthly benefit amount. A member can choose to stay with this maximum monthly benefit amount without any additional options. He or she will receive a payment each month for this same amount until death, plus any cost of living adjustments. A beneficiary will receive the balance of any remaining contributions. No continued benefit after death. A member can provide a monthly benefit for someone after he or she dies by choosing a joint-survivor option. His or her regular monthly payments will be reduced, allowing for continued payment after death for the rest of a survivor’s life. The higher the survivor’s benefit payment is, the lower the member’s will be during retirement. Age difference is also a factor. 50 Percent Joint-Survivor Benefit A member will receive approximately 91 percent of the maximum monthly benefit, adjusted for age difference. A survivor will receive 50 percent of the reduced monthly benefit for his or her lifetime after a member’s death. 75 percent Joint-Survivor Benefit A member will receive approximately 87 percent of maximum monthly benefit, adjusted for age difference. A survivor will receive 75 percent of the reduced monthly benefit for his or her lifetime after a member’s death. 100 Percent Joint-Survivor Benefit A member will receive approximately 83 percent of the maximum monthly benefit, adjusted for age difference. A survivor will receive 100 percent of the reduced monthly benefit for his or her lifetime after a member’s death. If the person a member chooses to receive a benefit after his or her death dies before the member, the option is canceled. The monthly benefit will then increase to the original maximum monthly benefit amount. This is called the “pop-up feature.” A member cannot name someone else to receive the benefit. A life-certain option may better fit a member’s needs if:
With a life-certain option a member will receive a reduced benefit for life. If he or her dies within the guaranteed period of time from his or her retirement date, a beneficiary will receive the same monthly benefit for the rest of the guaranteed period. A member can change beneficiaries at any time, and he or she can have any number of beneficiaries at once. They will equally share the benefit for the remaining time period. Life-certain options:
Life-Certain Option - An example Joe has a maximum monthly benefit of $2,000. He chooses the ten-year life-certain option. He receives $1,960 monthly for the rest of his life, no matter how long he lives. Joe dies seven years after he retires. As his chosen beneficiary, Joe’s daughter will receive $1,960 monthly for three more years. Joe’s seven years plus his daughter’s three years total the ten years Joe was guaranteed. If Joe had two daughters named as beneficiaries at the same time, they would share the $1,960 monthly and each would receive $980 for the three years. If a member selects a retirement benefit option under which the member’s spouse would receive less than one-half of the member’s monthly retirement benefit when the member dies, the Retirement System must have the spouse’s notarized signature on file. This will signify the spouse’s acknowledgment of the retirement benefit option the member has chosen. Also, the member chooses the PLSO, the spouse’s signature is required. Death BenefitRetirees have a $4,000 death benefit payable to their beneficiaries regardless of what payment option they choose. Retirees can name a funeral establishment (instead of a person, estate or trust) as the death benefit beneficiary. Under federal tax law, the $4,000 death benefit is taxable income to the beneficiary. If the retiree chooses to name a funeral establishment instead of an individual as beneficiary, the $4,000 will go directly to the establishment and no individual will be taxed. An original death certificate is required. The Retirement System cannot accept photocopies. Tax InformationRetirement benefits are not subject to Kansas income tax. Most retirement benefits will be subject to federal taxes. If the member made contributions to the Retirement System before July 1, 1984, or has paid for a service purchase with post-tax dollars, part of the member’s pension will not be taxable under federal law. Federal law allows the member to "recover" tax-free, those contributions the member made on a post-tax basis, and regulates the rate at which the member makes this recovery. When a retiree’s monthly retirement benefit exceeds $1,560 per month, the Retirement System automatically withholds taxes based on, "married with three dependents." A retiree can change this with the Internal Revenue Service form W-4P Withholding for Pension Payments. When the retiree’s monthly retirement benefit is under $1,560 per month, the Retirement System does not withhold deductions for federal taxes. A retiree can change this with the Internal Revenue Service form W-4P Withholding for Pension Payments. If a retiree elects not to have taxes withheld or not enough is withheld, the retiree may have to pay estimated taxes during the year. If estimated taxes are due but not paid, the retiree will have penalties to pay at the end of the year. The retiree’s decision on withholding is an important one. Members should consult a qualified tax consultant. Working During RetirementA member must wait 30 days after his or her retirement date to go back to work for any participating a Retirement System employer. To calculate the 30-day waiting period for returning to work after retirement, do not count the date of retirement. Count the next day as day one. There is a $15,000-a-year limit with any Retirement System employer for whom a retiree worked in the two years immediately before retirement. Example: If a member retires July 1, he or she can earn $15,000 for the period of August 1 through December 31. He or she will then start the new year with a limit of $15,000 for the period of January 1 through December 31. The $15,000 limit will continue each year as long as he or she is working for the same employer. If a retiree reaches the $15,000 limit before the end of the year he or she can:
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