Service Purchases
- KPERS
and Correctional Officers
Types of Automatic Service Credit
Prior Service - Non-School
Prior Service - School
Participating Service
Year of Service (Non-School Only)
Benefits
Advantages of Purchasing Sooner
Cost
Process
Lump-Sum Purchases
Payroll Deductions
Rollovers and Trustee-to-Trustee TransfersTypes of Service Purchases
Year of Service
Partial Year of Service
Forfeited Service
Military Service
Out-of-State Non-Federal Public Service
In-State Non-Federal Public ServiceOut-of-State Public School Teaching
Peace Corps Service
VISTA Service
Elected Official Service
Board of Regents Waiting Period
FORMS
KPERS-10 Employer Certification of Service
KPERS-67 Service Credit Purchase Application
KPERS-67R Service Credit Purchase via Rollover
KPERS-67PS Application to Purchase Public Service
KPERS 67T Service Credit Purchase with a Trustee-to- Trustee Transfer
Service Credit
Service credit is one of the factors used to calculate a member’s retirement benefit.
Years of service x multiplier x final average salary = annual retirement benefit
Years of service include prior service, participating service and purchased service.
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Types of Automatic Service Credit
Credit for an employee’s service with an employer before the employer became affiliated with KPERS. Continuous service immediately before affiliation will be credited to the member. Broken periods of service will be granted when the member has 38 quarters of participating service credit with KPERS, or at retirement if age 65.
Even if the employment was not continuous, an employee might receive credit for such service under certain conditions. Additional conditions may apply to school prior service. In some cases even if the conditions are not met, the prior service is awarded after 38 quarters of participating service or at retirement if age 65.
Prior service has a multiplier in the retirement formula of .75 percent or 1 percent.
To verify prior service:
- Complete an Employer Certification of Service form (KPERS-10).
- The designated agent where the prior service was performed must sign the KPERS-10 form verify prior service.
If a member leaves covered employment and withdraws from KPERS, the following applies:
- All service credit is forfeited. Prior service also is forfeited.
- The member may repurchase service once the member is a contributing member of KPERS again.
- Once the forfeited service is repurchased, all prior service will be credited.
Even without a repurchase of the forfeited service, prior service is reinstated when a member reaches 38 quarters of credited service.
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To receive credit for continuous prior service as a school employee a member must have been employed by a participating school employer on March 15, 1970 and January 1, 1971. The prior Kansas School Retirement System service credit will be computed at 1 percent of final average salary at time of retirement. If a member has withdrawn KSRS service credit before 1971, the member may purchase prior KSRS school service by lump-sum only if member is not a vested member (a member with 38 quarters of service credit). The prior KSRS service will be computed at 1 percent of final average salary at time of retirement.
The member does not have the option of purchasing the KSRS service once the member has 38 quarters of participating service credit. The KSRS service credit will then be credited without purchase. The prior KSRS service credit will be computed at 0.75 percent of final average salary at time of retirement.
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Credit for an employee’s covered employment. It accrues by quarters and is granted for any quarter in which a member contributes to the Retirement System. Participating service has a multiplier in the retirement formula of 1.75 percent.
When a member retires, the participating service quarters are converted to years to determine the member’s participating service credit basis. At retirement, two quarters round up to the next full year of credit. For example, 23 years and two quarters of service rounds up to 24 years. All participating service is credited at 1.75 percent of the member’s final average salary. Final average salary is an average of compensation in the highest 16 or 12 quarters, depending on membership date, and the quarters need not be continuous.
If a member has participated in one or more of the retirement systems administered by the KPERS Board of Trustees, combined service credit can be used to determine eligibility for retirement.
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"Year of Service" (Non-School Only)
- Employees working for non-school employers are required to work in a covered position for a year to become eligible.
- The year must be continuous and the employee must not be off the payroll for more than ten days during the year of service.
- If the employee has been off more than ten days, the membership date will be adjusted.
- Employment cannot be seasonal or temporary.
The only exception to the year of service rule is for employees of an employer affiliating with KPERS for the first time. For example: An employee was employed six months before the employer’s affiliation date. When the employer affiliates, this employee has six months of prior service, but must work six months after affiliation before becoming a member. Once the employee is a member, he or she can purchase the second six months as a "partial year of service."
Please remember to check when hiring a new employee to make sure the employee is not already a member of KPERS. If the employee has current KPERS membership, begin withholding contributions immediately.
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Purchasing Service Credit
- Increases a member’s years of credited service
- Increases a member’s retirement benefit
- Possible earlier retirement
- Spousal eligibility for survivor benefits may be enhanced
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Advantages of Purchasing Sooner
- Cost increases with member’s age
- Cost becomes higher as salary increases
- For payroll deduction, the cost rises above the flat 4 percent starting at age 42
- Only active members may purchase service credit
- Lump-sum purchases have certain per-year dollar limits under qualified plan requirements, and the purchase may have to be spread over more than one year
- A last minute purchase could delay retirement
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Cost is based on the actuarial value of the service being
purchased. The value is established in part
by using the higher of the following:
- The member's current annual salary (hourly rate of pay multiplied by the number
of hours of work the position requires per year or - The amount of compensation the member earned in the last 12 months
(this would include overtime, etc.) or - The member's final average salary
The cost is also based on the member’s age at the time of application.
A member's cost goes up as he or she gets older. One exception is for a member purchasing his or her year of service. If purchased by lump sum within a year after he or she becomes eligible, the year of service is sold at the flat price of 4 percent of the member's year of service salary regardless of the member’s age. This exception also applies if a member applies and completes a year of service by payroll deduction within two years of membership.
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- Employee contacts designated agent or KPERS to see if past service is eligible.
- If service is eligible, designated agent or KPERS will tell employee which form to complete.
- Employee completes an application to purchase service credit and gives it to his or her designated agent.
- Designated agent completes the rest of the form and sends it to KPERS.
- KPERS calculates the final cost and sends a letter to the designated agent to deliver to the employee.
- The employee signs the necessary paperwork, arranges for payment and returns both to KPERS.
- KPERS receives the money or payroll deduction commitment.
- KPERS adds service credit to the employee’s record after the purchase is completed.
If purchasing by lump sum, the member has 45 days from the date of the letter to send the payment to KPERS.
If purchasing by payroll deduction, the member has 21 days from the date of the letter to send the salary reduction authorization to KPERS. The employer should not begin additional payroll withholding for a service purchase unless the member has sent the salary-reduction authorization to KPERS.
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Members can make lump-sum purchases by personal check, money order or their Discover Credit Card with post-tax dollars.
< p>Return to service purchase topicsA member may purchase service credit over time by making additional payroll contributions under a payroll-reduction agreement between the employer and the member. Purchases by this method are made with pre-tax dollars.
This method can either double the regular contributions (to purchase an extra quarter of credit in each payroll quarter), or triple the regular contributions (to purchase an extra two quarters of credit in each payroll quarter). Note: The doubling or tripling of the contributions may be "modified," or made larger, based on the actuarial cost of the service credit. This is referred to as the "modified double- or triple-deduction method." An age actuarial table is used to determine the percentage that is to be taken from the member’s gross wages during the period of the purchase. This period is equal to the number of quarters being purchased.
Examples:
- Purchasing Two Years by Double Deduction (flat or modified): If the member is doing a double deduction to purchase two years of service, the salary reduction will continue for two years (eight quarters).
- Modified Triple Deduction (flat or modified): If the member is doing a triple deduction to purchase two years of service, the salary reduction will continue for one year (four quarters).
Purchase method cannot be changed once payroll deductions have been authorized. This is a fundamental qualified plan requirement for governmental plans selling service credit on a pre-tax basis. KPERS is not allowed to authorize any exceptions. However, if the member is ending employment or applying to retire the remaining service to be purchased may be paid for by lump-sum.
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Rollovers and Trustee-to-Trustee Transfers
Moving money from a current employer’s 457(b) or 403(b) plan to KPERS is called an in-service trustee-to-trustee transfer. Moving money from a former employer’s retirement plan is called a rollover. Both are by lump sum with pre-tax dollars.
Trustee-to-trustee transfers:
There are three requirements for an in-service trustee-to-trustee transfer to purchase KPERS service credit:
- The 457(b) governmental or 403(b) plan must allow an in-service trustee-to-trustee transfer. The State of Kansas deferred compensation plan permits transfers. The employee needs to contact his or her plan administrator to determine if that plan allows the transfers.
- The amount of money transferred to KPERS can be no more than the service purchase cost.
- Only permissive service can be purchased with a trustee-to-trustee transfer.
Rollovers:
Rollovers can be from a member’s traditional IRA or a former employer’s eligible retirement plan. An eligible plan is one qualified under section 401 of the Internal Revenue Cod, including:
- 401(a) tax qualified plan (including a Keogh plan that meets additional requirements)
- 401(k) plan, profit-sharing plan, defined benefit plan, stock bonus plan and money purchase plan
- 403(a) annuity plan
- 403(b) tax-sheltered annuity
- 408(a) individual retirement account
- 408(b) individual retirement annuity
- 457(b) plan maintained by a governmental employer
KPERS can also receive the amount from the member if it was originally distributed to the member from an eligible retirement account and is rolled over to KPERS within 60 days of that distribution. The member's check must be accompanied by proof of rollover eligibility.
With rollovers, the employee must rollover all of the money in his or her account and then close the account after the transaction. KPERS will return to the employee any money over the service purchase cost. KPERS can also roll over any excess into an eligible retirement plan to keep the money’s tax-deferred status.
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Types of Service Credit That May Be Purchased
Different service purchases have different criteria. Some are based on state law. Others are based on federal qualified-plan requirements. State law provides that some types of service may be purchased by lump sum only (on a post-tax basis) and others may be purchased either by lump sum or by payroll deductions (on a pre-tax basis) over the number of quarters being purchased.
The following service credit may be purchased either by lump sum, trustee-to-trustee transfer, rollover or payroll deduction:
- “Year of Service" and "Partial Year of Service" – the year or part of a year spent in covered employment while waiting for KPERS membership.
- Forfeited service – service credit previously forfeited by withdrawal from the System
- Military service
- Peace Corps Service
VISTA Service - Out-of-state non-federal public service
- In-state non-federal public service
- Out-of-state public school teaching service
- Elected official service
- "Forfeited" years of service as participant in the Board of Regents Plan – member has taken full distribution from account
- Waiting period for eligibility for Board of Regents Plan participation – member either did not become a participant in Regents Plan or has taken full distribution from that account
The following types of service may be purchased by lump sum only:
- Forfeited Kansas School Retirement System service (KSRS).
- Certain service known as "Barred Service" (service previously precluded from KPERS coverage by a law, since repealed).
- Buy-up of multiplier from 1 percent to 1.75 percent – related to service previously purchased at lower multiplier
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Purchasing the “year of service” does not change a member’s membership date. A person who withdrew from membership and re-joined more than once may have more than one of these. School employment does not require a year of service. School employees have immediate KPERS membership.
A year of service for non-school employees is not required when:
- An active KPERS member changes employment and transfers to another KPERS covered position.
- An inactive member who has not withdrawn his or her contributions returns to KPERS covered employment.
If a member with forfeited KPERS service wants to purchase the year of service connected to the forfeited service, the member must purchase the forfeited service first. If purchasing by lump-sum, both the year of service and the forfeited service purchases may be completed at the same time. Also, one may be purchased by lump sum and one by payroll deduction. This does not apply to any year of service that is not connected to forfeited service.
There is no actuarial cost calculation for the year of service
if purchased under these guidelines:
If the member completes the lump-sum purchase within 12 months of the
membership date, the purchase will be calculated at an additional 4 percent
of the member’s compensation during the member’s year of service
regardless of the member’s age.
If the member commits to complete his or her purchase by payroll deduction within 24 months of his or her membership date:
- Deduction will be an additional 4 percent for double deduction (year of service is purchased in four payroll quarters)
- Deduction will be 8 percent for triple deduction (year of service is purchased in two payroll quarters) regardless of the member’s age.
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A "partial year of service" is either a portion of a year of service worked that did not result in membership or a portion of a year that did result in membership in combination with some prior service. The partial year may be purchased by any method. The partial year has to be verified on an Employer Certification of Service form (KPERS-10) form by the employer where the service was performed.
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Service the member had under KPERS that has been withdrawn following a previous separation from service. KPERS will look up the forfeited records to determine the amount of service available to be purchased. Member must purchase all of the service that was forfeited.
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- Active service in the armed forces
- Reserve service to fulfill the initial service obligation
- Service in the commissioned corps of the U.S. Public Health Service
Credit for this service is limited to six years, five of which may be granted at no cost if surrounded by public employment. The amount of service eligible to be purchased is determined by a member’s original obligation, or initial service obligation, on member’s DD-214 military papers (member may submit a photocopy). A member may purchase quarter for quarter for periods of active duty, and one quarter for one year of reserve time.
If the member’s application to purchase military service by salary reduction was received in the KPERS office between July 1, 1993 and October 20, 1995, this purchase involves credit for which the actuarial cost was not charged at the time. Payment for this service must be completed at least five years before retirement. If payment is complete but a member retires before five years, either:
(a) the member must pay the full actuarial cost of the service
in a lump sum before retirement to keep the service, or
(b) the member must delay retirement until the end of the five-year period
For salary-reduction military service-purchase applications received after October 20, 1995, this five-year rule does not apply because the purchase price is already based on actuarial cost.
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Out-of-State
Non-Federal Public Service
In-State Non-Federal Public
Service
Out-of-State Public School Teaching
Peace Corps Service
VISTA Service
When purchasing these types of credit, a member can select the retirement formula percentage multiplier (1 percent or 1.75 percent).
Members who purchased service before July 1, 1998, may elect to "buy up" from 1 percent to 1.75 percent by making a lump-sum payment. Certain limits may apply.
If a member applies to purchase in-state or out-of-state non-federal public service by lump sum and will receive a pension benefit based on the same service from another pension plan, then the following guidelines apply:
- Member must have five years of participating service credit in Kansas, which cannot include military service.
- Member is limited to purchasing five years of in-state and out-of-state service.
- When purchasing the same kind of service, there is no limit on the number of years a member may purchase by payroll deduction.
- If this service is not the basis of a pension, KPERS has no overall limit on the number of years that a member may purchase, whether by payroll deduction or lump sum.
Lump-sum purchases may be limited within a single calendar year. Federal qualified plan requirements limit the amount of lump-sum (post-tax) money a member may put into the plan in a single calendar year. Please contact the Retirement System for the current year limits. This restriction applies only to post-tax contributions, not to regular KPERS withholding or tax-deferred rollovers into the plan. No one can avoid paying FICA tax or their KPERS contributions. It is sometimes not feasible to deposit the full allowed percentage into the retirement plan.
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County commissioners, school board members, aldermen, mayors, city council members or commissioners whose compensation equals or exceeds $5,000 per year are eligible to be KPERS members regardless of how many hours they work.
If an elected official becomes a KPERS member, he or she can purchase any or all of his her previous elected-official service regardless of the membership guidelines in effect at that time. This service is calculated into quarters and the member can purchase a minimum of one quarter to the maximum of all quarters available.
The following guidelines apply:
- If the elected official previously contributed to KPERS as an elected official and subsequently withdrew his or her contributions, the withdrawn service is available for purchase as forfeited service.
- Non-participating elected-official service in the past, which was concurrent with KPERS membership from another position, cannot be purchased for additional service credit. However, a person who is now an active contributing KPERS member, who also wins an elective office to be held concurrently with his or her KPERS position, is required to participate in KPERS as an elected official.
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Board of Regents Waiting Period
Active KPERS members who formerly participated in the Board of Regents Retirement Plan (BOR plan) under K.S.A. 74-4925 and amendments thereto, who have withdrawn all their money from that plan, may purchase service credit in KPERS for the BOR plan’s statutory waiting period. Also, those who never joined the BOR plan may purchase credit for part of the waiting period. Members must buy this type of service at an actuarial cost with a single lump-sum payment.
If a person currently has money in a BOR plan account, he or she may not buy service credit in KPERS for service while in the BOR plan or for service while in the BOR plan waiting period.
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IRS Compliance
KPERS is a “qualified plan” under federal tax provisions. Our members contribute on a pre-tax basis, where interest and entitlements accrue without current taxation. KPERS must observe federally mandated restrictions on some transactions. The restrictions limit either the years of service that may be purchased or the amount of money that may be put into the plan in a single calendar year.
Members whose membership date is earlier than January 1, 1999, have been "grandfathered" under federal law and will retain permanently (unless they withdraw) all the service-purchase opportunities that existed under the plan in August of 1997.
Members whose membership date is January 1, 1999, or later may be subject to certain restrictions on their service purchases. Without regard to membership date, any new types of service that are added to the purchase opportunities in the plan after August 1997 are subject to federally imposed restrictions.
The amount of after-tax money that a member may contribute to a qualified plan each year is limited. Please contact the Retirement System for the current year limits. Members cannot avoid paying FICA tax on their contributions. Because of this, it is sometimes not feasible to deposit the full allowed percentage into the retirement plan. This restriction applies only to post-tax contributions, not to regular KPERS withholding or tax-free rollovers into the plan.