KRS § 61.522 — KY Code / Title VIII / Chapter 61 / Section 61.522
61.522 Definitions -- Voluntary and involuntary cessation of participation by employer in retirement system -- Effects of on employees, employers, and system -- Statutes and administrative regulations that prevail regarding participation
Status: in_force

61.522 Definitions -- Voluntary and involuntary cessation of participation by

employer in retirement system -- Effects of on employees, employers, and

system -- Statutes and administrative regulations that prevail regarding

participation.

Notwithstanding any other provision of KRS 61.510 to 61.705 or 78.510 to 78.852 to the

contrary:

(1) For purposes of this section:

(a) "Active member" means a member who is participating in the system;

(b) "Employer" means the governing body of a department, as defined by KRS

61.510;

(c) "Employer's effective cessation date" means:

1. The last day of the system's plan year in the year in which the employer

has elected to cease participation in the system, provided the employer

has met the requirements of this section and has given the Kentucky

Retirement Systems sufficient notice as provided by administrative

regulations promulgated by the systems; or

2. For Kentucky Employees Retirement System employers making an

election to cease participating under the provisions of subsection (8) of

this section, it shall be June 30, 2021; and

(d) "Inactive member" means a member who is not participating with the system;

(2) Any employer participating in the Kentucky Employees Retirement System on July

1, 2015, except as limited by subsection (6) of this section, may:

(a) Voluntarily cease participation in its respective retirement system subject to

the requirements and restrictions of this section;

(b) Be required to involuntarily cease participation in the system under the

provisions of this section if the board has determined the employer is no

longer qualified to participate in a governmental plan or has failed to comply

with the provisions of KRS 61.510 to 61.705; or

(c) If the employer is participating in the Kentucky Employees Retirement

System, request an estimate of the cost of voluntarily ceasing participation in

the system prior to officially making a request to cease participation. For those

Kentucky Employees Retirement System nonhazardous employers who are

considering ceasing participating in the system under the provisions of

subsection (8) of this section on June 30, 2021, the request for an estimate to

voluntarily cease participating must be made prior to December 31, 2019, and

the estimate shall be provided to that employer within sixty (60) days of the

request, except that no estimate shall be required to be provided prior to

January 31, 2020;

(3) (a) If an employer desires to voluntarily cease participation in the Kentucky

Employees Retirement System as provided by subsection (2)(a) of this

section:

1. The employer shall adopt a resolution requesting to cease participation

in the system and shall submit the resolution to the board for its

approval. The board shall not be able to deny a resolution to cease

participation in the Kentucky Employees Retirement System for any

employer who seeks to voluntarily cease participation in the system as

provided by subsection (8) of this section;

2. Except as provided by subsection (8)(d) of this section, the cessation of

participation in the system shall apply to all employees of the employer;

3. The employer shall pay for all administrative costs of an actuarial study

to be completed by the Kentucky Retirement Systems' consulting actuary

and for any other administrative costs for discontinuing participation in

the system as determined by the board and as provided by this section;

4. The employer shall provide an alternative retirement program for

employees who will no longer be covered by the system, which may

include a voluntary defined contribution plan but, for Kentucky

Employees Retirement System employers with effective cessation dates

occurring on or after June 30, 2020, the alternative retirement program

shall not include a defined benefit plan which by its nature can have an

unfunded liability;

5. If the alternative retirement program established by the employer meets

the qualification requirements under 26 U.S.C. sec. 401(a) or 26 U.S.C.

sec. 403(b) and is capable of accepting trustee-to-trustee transfers of

both pre-tax and post-tax contributions, employees of the employer

ceasing participation may, except for those employees continuing to

participate in the system as provided by subsection (8)(d)2. of this

section, seek to transfer his or her account balance to the employer's

qualified alternate retirement program within sixty (60) days of the

employer's effective cessation date. An employee's election to transfer

his or her account balance within sixty (60) days of the employer's

effective cessation date is an irrevocable waiver of the right to obtain

service credits in the system for the time worked for the employer

ceasing participation;

6. The employer shall pay to the system by lump sum or in installments as

provided by subsection (8) of this section, if eligible, the full actuarial

cost, except as provided by subsection (8)(g)4. of this section, of the

benefits accrued by its current and former employees in the system as

determined separately for the pension fund and the insurance fund by the

actuarial study required by subparagraph 3. of this paragraph. If the

employer makes an election for employees to continue to participate in

the system as provided by subsection (8)(d)2. of this section, the cost

shall also include the present value of future normal costs of those

employees who will continue to participate in the system after the

employer's effective cessation date. The full actuarial cost shall not

include any employee who seeks a transfer of his or her account balance

within sixty (60) days of the employer's effective cessation date as

provided by subparagraph 5. of this paragraph. The actuarial cost shall

be fixed, and the employer shall not be subject to any increases or

subsequent adjustments, once the lump sum is paid or the installment

payments have commenced; and

7. Kentucky Employees Retirement System employers ceasing

participating under the provisions of subsection (8) of this section who

elect to pay their actuarial costs by a lump sum shall pay the entire costs,

in one (1) or more payments, so that the full actuarial costs are paid by

June 30, 2022. Interest on the unpaid principal amount of the full

actuarial costs shall begin on July 1, 2021, and accrue until the full

actuarial costs are paid. If the ceasing employer makes a payment prior

to July 1, 2021, the ceasing employer shall receive a credit against their

full actuarial costs to be determined as of June 30, 2021, that is equal to

the amount of the prior payment plus interest for the period beginning on

the date of the prior payment and ending on June 30, 2021. If a final

payment is due by June 30, 2022, for an employer who has made a

payment or payments on or before June 30, 2021, it shall be equal to any

unpaid actuarial costs due plus interest as of the date of final payment. If

the payment or payments made by the ceasing employer exceed the final

full actuarial costs of ceasing participation, the employer shall by June

30, 2022, be refunded an amount equal to the overpayment plus interest

for the period beginning on the date of the overpayment and ending on

the date the refund is paid to the employer. If the ceasing employer fails

to make the full lump-sum payment by June 30, 2022, the ceasing

employer shall make installments as provided by subsection (8)(g) of

this section, and the ceasing employer shall have the costs recalculated

based upon making installment payments as provided by this section and

shall be required to make up any missed installment payments as

determined by the system. For purposes of this subparagraph, "interest"

shall be equal to a rate of five and one-quarter percent (5.25%) per

annum for pension costs and at a rate of six and one-quarter percent

(6.25%) per annum for retiree health costs.

(b) If the board determines an employer must involuntarily cease participation in

the system as provided by subsection (2)(b) of this section:

1. The cessation of participation in the system shall apply to all employees

of the employer;

2. The employer shall pay for all administrative costs of an actuarial study

to be completed by the Kentucky Retirement Systems' consulting actuary

and for any other administrative costs for discontinuing participation in

the system as determined by the board and as provided by this section;

and

3. The employer shall pay by lump sum to the system the full actuarial cost

of the benefits accrued by its current and former employees in the

system as determined separately for the pension fund and the insurance

fund by the actuarial study required by subparagraph 2. of this

paragraph. The actuarial cost shall be fixed, and the employer shall not

be subject to any increases or subsequent adjustments, once the lump

sum is paid.

A Kentucky Employees Retirement System employer who ceases participation

in the systems under this paragraph shall not establish or contribute to on

behalf of its employees a defined benefit plan which by its nature can have an

unfunded liability;

(4) Any employee hired on or after the employer's effective cessation date by an

employer who has ceased participation in the system as provided by this section

shall not, regardless of his or her membership date in the systems administered by

Kentucky Retirement Systems, be eligible to participate in the Kentucky Employees

Retirement System through the employer that ceased participation for the duration

of his or her employment with that employer;

(5) If an employer has ceased participation in the system as provided by this section:

(a) The rights of recipients and the vested rights of inactive members accrued as

of the employer's effective cessation date shall not be impaired or reduced in

any manner as a result of the employer ceasing participation in the system; and

(b) Except as provided by subsection (8)(d)2. of this section, employees of the

employer ceasing participation shall accrue benefits through the employer's

effective cessation date but shall not accrue any additional benefits in the

Kentucky Employees Retirement System, including earning years of service

credit through the ceased employer, after the employer's effective cessation

date for as long as they remain employed by the employer. The day after the

employer's effective cessation date, each employee described by this

paragraph, except as provided by subsection (8)(d)2. of this section, shall be

considered an inactive member with respect to his or her employment with the

employer that ceased participation and, subject to the provisions and

limitations of KRS 61.510 to 61.705, shall:

1. Retain his or her accounts with the Kentucky Employees Retirement

System and have those accounts credited with interest in accordance

with KRS 61.510 to 61.705;

2. Retain his or her vested rights in accordance with paragraph (a) of this

subsection; and

3. Be eligible to take a refund of his or her accumulated account balance in

accordance with KRS 61.625 or any other available distribution if

eligible;

(6) Kentucky Employees Retirement System employers who are county attorney

offices, Commonwealth's attorney offices, local and district health departments

governed by KRS Chapter 212, master commissioners, executive branch agencies

whose employees are subject to KRS 18A.005 to 18A.200, state-administered

retirement systems, state-supported universities and community colleges, property

valuation administration offices, or employers in the legislative or judicial branch of

Kentucky state government, shall not be eligible to voluntarily discontinue

participation in the Kentucky Employees Retirement System, except that:

(a) Any employer who is a nonstock nonprofit corporation organized under KRS

Chapter 273 may voluntarily cease participation; and

(b) Local and district health departments governed by KRS Chapter 212, state-

supported universities and community colleges, and the Kentucky Higher

Education Student Loan Corporation may voluntarily cease participation in

the Kentucky Employees Retirement System solely under the provisions and

requirements of subsection (8) of this section;

(7) For purposes of this section, the full actuarial cost shall be determined by the

Kentucky Retirement Systems' consulting actuary separately for the pension fund

and the insurance fund using the assumptions and methodology established by the

system specifically for determining the full actuarial cost of ceasing participation as

of the employer's effective cessation date. For purposes of determining the full

actuarial cost, the assumed rate of return used to calculate the cost shall be the lesser

of the assumed rate of return utilized in the system's most recent actuarial valuation

or the yield on a thirty (30) year United States treasury bond as of the employer's

effective cessation date, but shall in no case be lower than:

(a) Except as provided by paragraphs (b) to (e) of this subsection, the assumed

rate of return utilized in the system's most recent actuarial valuation minus

three and one-half percent (3.5%);

(b) Four and one-half percent (4.5%) for those Kentucky Employees Retirement

System employers who voluntarily cease participation under the provisions of

subsection (8) of this section who pay the costs of ceasing participation by

lump-sum payment by June 30, 2022, and who do not make an election for

their employees to continue to participate in the system after the employer's

effective cessation date as provided by subsection (8)(d)3. of this section;

(c) Five and one-quarter percent (5.25%) for university and community college

employers or three and one-half percent (3.5%) for all other Kentucky

Employees Retirement System employers who voluntarily cease participation

under the provisions of subsection (8) of this section who pay the costs of

ceasing participation by lump-sum payment by June 30, 2022, and who do

make an election for employees to continue to participate in the system after

the employer's effective cessation date as provided by subsection (8)(d)2. of

this section;

(d) Three and one-half percent (3.5%) for those Kentucky Employees Retirement

System employers who voluntarily cease participation under the provisions of

subsection (8) of this section who pay the costs of ceasing participation by

installment payments and who do not make an election for employees to

continue to participate in the system after the employer's effective cessation

date as provided by subsection (8)(d)3. of this section; or

(e) Three percent (3%) for those Kentucky Employees Retirement System

employers who voluntarily cease participation under the provisions of

subsection (8) of this section who pay the costs of ceasing participation by

installment payments and who do make an election for employees to continue

to participate in the system after the employer's effective cessation date as

provided by subsection (8)(d)2. of this section;

(8) Notwithstanding the provisions of this section, any Kentucky Employees

Retirement System employer who is eligible to voluntarily cease participating as

provided by subsection (6) of this section may, on or after April 1, 2020, but prior to

May 1, 2021, except in the case of university or community college employers it

shall be prior to January 1, 2021, elect to voluntarily cease participating in the

systems for its nonhazardous employees by submitting a resolution in accordance

with subsection (3)(a)1. of this section. If an employer makes an election to

voluntarily cease participation by submitting a resolution as provided by this

subsection:

(a) The board shall accept any election to cease participation on or before June

30, 2021, and the employer's effective cessation date shall be June 30, 2021.

Prior to May 1, 2021, or January 1, 2021, in the case of university or

community college employers, the employer may rescind a previously

submitted election to cease participation;

(b) Nonhazardous employees hired on or after the employer's effective cessation

date by an employer who has ceased participation in the system as provided by

this section shall not, regardless of his or her membership date in the systems

administered by Kentucky Retirement Systems, be eligible to participate in the

Kentucky Employees Retirement System through the employer that ceased

participation for the duration of his or her employment with that ceasing

employer;

(c) Nonhazardous employees hired prior to the employer's effective cessation

date, who began participating in the systems administered by Kentucky

Retirement Systems on or after January 1, 2014, and who are participating in

the hybrid cash balance plan as provided by KRS 61.597, shall continue to

contribute and earn service credit in the systems through the employer's

effective cessation date. After the employer's effective cessation date, the

employee shall participate in the alternative retirement plan established by the

employer as provided by subsection (3)(a)4. of this section. A nonhazardous

employee covered by this paragraph who elects to transfer his or her account

balance within sixty (60) days of the employer's effective cessation date as

provided by subsection (3)(a)5. of this section, shall, notwithstanding KRS

61.597, receive a transfer of the employee's accumulated account balance,

including the entire accumulated employer credit, regardless of the employee's

years of service credit;

(d) 1. The employer shall, in the resolution submitted in accordance with

subsection (3)(a)1. of this section, make an election as to whether or not

nonhazardous employees hired prior to the employer's effective

cessation date, who began participating in the systems administered by

Kentucky Retirement Systems prior to January 1, 2014, who are

participating in the systems administered by Kentucky Retirement

Systems through the employer, will continue to participate in the system

after the employer's effective cessation date.

2. If the employer makes an election for the employees described by this

paragraph to continue participating in the system after the employer's

effective cessation date, these employees will continue to contribute and

earn service credit in the systems for as long as they remain employed by

the employer in a regular full-time position that is eligible to participate

in the systems, except in the event the employer fails to make

installment payments as provided by KRS 61.675(4). Any costs for the

present value of future normal costs of the employees covered by this

subparagraph who will contribute and earn service in the system after

the employer's effective cessation date shall be included in the cost

calculation established by subsection (7) of this section.

3. If the employer does not make an election for the employees described

by this paragraph to continue participating in the system after the

employer's effective cessation date, these employees shall continue to

contribute and earn service credit in the systems through the employer's

effective cessation date. After the employer's effective cessation date,

these employees shall participate in the alternative retirement plan

established by the employer as provided by subsection (3)(a)4. of this

section;

(e) The cost of ceasing participating to an individual employer shall be equal to

the cost determined under subsection (7) of this section and shall include the

costs of those employees who continue to participate in the system as

provided by paragraph (d)2. of this subsection;

(f) The employer may pay the full actuarial cost of ceasing participation by lump-

sum payment or in installments as provided by paragraph (g) of this

subsection;

(g) If the employer elects to pay the costs in installment payments, the cost of

ceasing participation as provided by this subsection shall be financed by the

systems using the following method:

1. Annual payments occurring on or after July 1, 2021, shall be a set dollar

value and shall be paid in monthly installments. In fiscal year 2021-

2022, the set dollar value shall be equal to the higher of the actual

contributions paid by the employer in fiscal year 2020-2021 or the

annualized average of the creditable compensation reported to the

systems by the ceasing employer over the last sixty (60) months

occurring prior to July 1, 2019, for which contributions were paid by the

ceasing employer, and multiplied by an employer rate of forty-nine and

forty-seven one-hundredths percent (49.47%). Annual payments, for

fiscal years occurring on or after July 1, 2022, which shall be paid

monthly, shall be increased by one and one-half percent (1.5%) annually

and shall be paid until the cost as provided by subsection (7) of this

section and as adjusted annually by subparagraphs 2. and 3. of this

paragraph are paid in full or until an employer as described by

subparagraph 4. of this paragraph has paid for thirty (30) years from the

effective cessation date;

2. Interest shall be assigned to the principal amount annually beginning on

July 1, 2021, and for each July 1 thereafter, that is equal to a rate of five

and one-quarter percent (5.25%) per annum for pension costs and at a

rate of six and one-quarter percent (6.25%) per annum for retiree health

costs;

3. If an employer is not projected by the systems to pay off the full

actuarial costs to cease participation with interest as provided by

subparagraph 2. of this paragraph at the conclusion of the thirty (30) year

installment period from the employer's effective cessation date, and the

employer makes an election for employees to continue to participate in

the system after the employer's effective cessation date as provided by

paragraph (d)2. of this subsection, then the systems shall adjust the base

value for the first annual payments occurring on or after July 1, 2021, in

order to keep the maximum period of installments to thirty (30) years;

and

4. If an employer is not projected by the systems to pay off the full

actuarial costs to cease participation with interest as provided by

subparagraph 2. of this paragraph at the conclusion of the thirty (30) year

installment period from the employer's effective cessation date, and the

employer does not make an election for employees to continue to

participate in the system after the employer's effective cessation date as

provided by paragraph (d)3. of this subsection, the employer shall pay

the amount determined by subparagraph 1. of this paragraph for thirty

(30) years from the effective cessation date and no additional costs shall

be billed to a ceasing employer after the conclusion of the thirty (30)

year period nor shall the employer be subject to adjustments under

subparagraph 3. of this paragraph. The system may request in future

biennial executive branch budgets the additional funding needed on an

annual basis to fully pay off the installments at the conclusion of the

thirty (30) year period for the employers described by this paragraph,

and it is the intent of the General Assembly to pay the additional funding

needed by appropriation in the biennial executive branch budget.

An employer ceasing participation who is making installment payments as

provided by this paragraph may at any time pay off a portion of the remaining

balance or the entire remaining balance and shall not be charged any interest

for periods beyond the pay-off date for the balance that is paid off;

(h) Kentucky Employees Retirement System employers eligible to cease

participation under the provisions of this subsection who do not make an

election to cease participation in the system prior to May 1, 2021, or prior to

January 1, 2021, in the case of university and community college employers,

shall be required to pay the full actuarially determined contributions

established by KRS 61.565 and 61.702 for fiscal years occurring on or after

July 1, 2021; and

(i) Kentucky Employees Retirement System employers who elect to cease

participation in the system as provided by this subsection who are currently

receiving a distribution of general fund appropriations in the biennial

executive branch budget under the provisions of 2018 Ky. Acts ch. 169, Part I,

G., 4., (5), 2018 Ky. Acts ch. 169, Part I, G., 5., (2), or 2018 Ky. Acts ch. 169,

Part I, G., 9., (2) to help pay employer contributions to the system shall

continue to receive the same level of distribution of general fund

appropriations to help pay the costs of ceasing participation until such time

that the employer's full actuarial costs of ceasing participation are paid off;

(9) The Kentucky Retirement Systems shall promulgate administrative regulations

pursuant to KRS Chapter 13A to administer this section;

(10) (a) Any employer who voluntarily ceases participation, or who is required to

involuntarily cease participation as provided in this section, shall hold the

Commonwealth and the Kentucky Retirement Systems, including board

members and employees of the Kentucky Retirement Systems, harmless from

damages, attorney's fees and costs from legal claims for any cause of action

brought by any member or retired member of the departing employer related

to the employer's cessation of participation as set forth in this section.

(b) Any employer who is voluntarily ceasing participation under the provisions of

subsection (8) of this section shall be required to pledge any security in any

relevant real estate, chattel paper, deposit accounts, documents, goods covered

by documents, instruments, investment property, letters of credit rights, and

money to the costs of ceasing participation until all costs of ceasing

participation are paid in full; and

(11) Notwithstanding any other provision of statute to the contrary, the provisions of

KRS 61.510 to 61.705, and the administrative regulations promulgated thereunder,

shall prevail regarding any question of participation in the systems of any employer

or any employee of an employer who ceases participation in the Kentucky

Employees Retirement System.