The state retirement system of Kentucky had been in deep crisis for some time. But the recently developed “Keeping the Promise” plan that Governor Matt Bevin introduced looks to fix this long-running issue. Aside from this, the state’s pension plan is fairly complex and consists of eight different retirement plans for the multiple types of employees the state has. You may prefer to have some help navigating the complexities of the Kentucky retirement system. If so, the SmartAsset SmartAdvisor tool can match you with up to three financial advisors in your area.
Types of Retirement Systems in Kentucky
Kentucky has a fairly large number of retirement systems for it public employees, with eight offerings across all different jobs. The benefits and retirement requirements that accompany these plans are based on what the position entails. This is most evident with its “hazardous” versus “non-hazardous” programs. The more dangerous positions come paired with stronger perks and easier-to-meet prerequisites.
|Kentucky Retirement Systems|
|Plan Title||Eligible Employees|
|Kentucky Employees Retirement System: Hazardous Employees (KERS-H)||– Any police, firefighters, paramedics, emergency medical technicians and state correctional employees/educational employees that regularly interact with inmates|
|Kentucky Employees Retirement System: Non-Hazardous Employees (KERS-NH)||– All other employees|
|County Employees Retirement System: Hazardous Employees (CERS-H)||– County employees who come into contact with danger and require some level of physical conditioning |
– County employees whose responsibilities are not primarily administrative
|County Employees Retirement System: Non-Hazardous Employees (CERS-NH)||– All other employees|
|State Police Retirement System (SPRS)||– All uniformed state police officers|
|Teachers’ Retirement System of Kentucky (TRS)||– University employees: anyone working full-time at a college in a position that requires a bachelor’s degree or certification from a four-year university |
– Non-university employees: anyone working full-time, part-time or as a substitute teacher in a position that requires a bachelor’s degree or certification from a four-year university
|Kentucky Legislators’ Retirement Plan (KLRP)||– Members of the General Assembly|
|Kentucky Judicial Retirement Plan (KJRP)||– Justices of the Supreme Court, judges of the Court of Appeals, circuit judges and judges of the District Court|
The retirement systems Kentucky offers for public employees are divided into three groups: Kentucky Retirement Systems (KRS), Kentucky Judicial Form Retirement System (KJFRS) and Teachers’ Retirement System of Kentucky (TRS). KRS consists of the most, and includes the KERS-H, KERS-NH, CERS-H, CERS-NH and SPRS plans. The KJFRS is significantly smaller, and is comprised of just the KJRP and KLRP plans. The TRS program stands on its own.
Overview of Kentucky’s Retirement Systems
Kentucky Employees Retirement System: Hazardous Employees – Being that anyone who’s part of this program encounters dangerous activities daily, Kentucky offers stronger death and disability benefits. All employers who have employees that fit this “hazardous” distinction are required to be a part of the program.
Kentucky Employees Retirement System: Non-Hazardous Employees – There are 124,000 employees involved with this retirement system. Around one-third of them remain active members. This theoretically bodes well for this program. That’s because there are more individuals currently contributing to it than taking from it.
County Employees Retirement System: Hazardous Employees – In order for an employer, and therefore its employees, to gain eligibility to this system, the KRS Board of Trustees must approve the admission. But if chosen, the benefits “hazardous” employees receive are similarly robust to those in the state program.
County Employees Retirement System: Non-Hazardous Employees – This is the most populated plan in the Kentucky retirement system portfolio. It has nearly 200,000 active, inactive and retired members. Although the state isn’t doing too well financially, the sheer size of this system should help protect it.
State Police Retirement System – If you’re a full-time state police officer, you have no choice but to join the SPRS. It features some of the best retirement ages in Kentucky, but has the smallest member base in the Kentucky retirement system.
Although the five retirement systems listed above all part of the overarching KRS classification, they are further subdivided into three categories. These depend on when you began paying member contributions. They go as follows:
- Tier 1: Before 9/1/2008
- Tier 2: Between 9/1/2008 and 1/1/2014
- Tier 3: On or after 1/1/2014
Teachers’ Retirement System of Kentucky – Kentucky’s TRS program is extremely complete, featuring survivor, life insurance and medical insurance benefits. These are all included outside of typical retirement perks. Without penalty, you can retire from this plan with five years of service at age 60, or whenever you want with 27 years of service under your belt.
Kentucky Legislators’ Retirement Plan – The usual retirement age for KLRP plan participants is 65, though you can alter this. In fact, you can deduct one year from that number for every five years of service credit you have, up to five years total. You’ll also need at least 27 years of state government service credit to retirement.
Kentucky Judicial Retirement Plan – The retirement age stipulations that apply for the KLRP are also utilized for the KJRP. You’ll need a minimum of 27 years of state government service prior to receiving unreduced retirement distributions.
Retirement Taxes in Kentucky
When you contribute money to a pension plan, it bypasses all taxes, making it a tax-deferred account. But you unfortunately cannot escape the tax man in the Kentucky retirement system. Any payments you take from your pension once you’re retired are required to be taxed as income. The federal income will allow you to choose if you want to withhold these funds from each check or if you want to make estimated tax payments.
Exactly how much is withheld is dependent on many factors, such as exemptions. But the government will take care of those calculations and either refund you or charge you for any differences. You may want to go the estimated tax route. You should get a professional to handle these calculations and pay your estimates four times a year.
Retirement plans that include rollovers can help you even further push off the need to pay federal tax on your pension funds. This is because a rollover goes directly from your pension plan to an alternative retirement account. That account is likely also tax-deferred. Although as soon as you withdraw that money, you’ll have to pay federal income tax.
If you have a Roth IRA, things will differ slightly. In this situation, you will pay taxes up-front but most distributions will be tax-free.
Kentucky does not levy an estate tax.
Any funds that you contributed to your pension prior to Dec. 31, 1997 are completely exempt from any and all Kentucky income tax. Whatever you earned after that does become part of the state income tax, though. However, this is limited solely to any amount over $41,110 per taxpayer, per year.
The only other paperwork that you will have to file with Kentucky is Form W-4P. This helps the federal and state governments to decipher what your legal status and eligible exemptions are.
Current Financial Health of the Kentucky Retirement System
Kentucky’s pension funds are the most underfunded in the U.S., with about $20,000 per state resident in unpaid for liabilities. In order to try and realize some level of growth, the state has taken on much more investment risk with its pension funds. In the Kentucky retirement system, that could lead to more trouble. Furthermore, because Kentucky has increased spending within its pension fund, other areas of the state government’s services have suffered financially. The education sector is one such example.
There is a hopeful light at the end of the tunnel, though. Governor Bevin has taken aim at this major problem, implementing a plan entitled “Keeping the Promise” that began July 1, 2018. This strategy takes a multi-pronged approach to try and build this broken system. In addition, the program still protects the rights of those at critical times in their retirement or near-retirement lives. For example, there will be no reductions to current pension checks and the full retirement age will not be altered.
Tips for a Successful Retirement
- Having a set of financial goals before you reach retirement age is the best way to ensure that you’re not just endlessly saving. This will help to identify where you want to end up, and can make your retirement more tangible and attainable.
- Retirement is tough to be prepared for, even if you do have a pre-set pension with the state. The professional guidance of a financial advisor might be perfect way to get your plans in order, all while managing your current finances. SmartAsset’s financial advisor matching tool has the ability to pair you up with three advisors in your area that are equipped to handle your needs.
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