Purchasing Service Credit FAQ's

Can I purchase service credit?
There are more than 31 types of service an employee may purchase in order to increase service credit. The service must meet the following minimum requirements in order to be purchased:
1. The service must be full-time in accordance with KRS 61.510 and KRS 78.510.
2. The service cannot be credited to another defined benefit retirement plan.
3. The member or the agency where you worked to earn the service must provide verification of employment as required by the retirement systems.
Most purchase types also require the member to be participating and vested in KERS, CERS, or SPRS at the time the purchase is made. In order to be vested, a member under the age of 65 must have at least 60 months of service credit while a member over the age of 65 must have at least 48 months of service credit.

Retirees or members who are not contributing to one of the state administered retirement systems cannot purchase service credit. Retirees who have returned to work and are contributing to a new retirement account cannot purchase service they were eligible to purchase prior to their initial retirement.

See Also: Summary Plan Description: Examples of Service Eligible to Purchase.

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How much will it cost me to purchase service credit?
For almost all purchase types, the cost is determined by multiplying the higher of the employee's current rate of pay, final rate of pay, or final compensation by the actuarial age factor by the number of years of service being purchased. Purchases not calculated under this method include Recontribution of Refunds taken from the system, Hazardous Conversions, and Omitted Service. Generally, the cost of purchasing service credit increases as you get older and as your rate of pay increases.

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How can I pay for a service purchase?
Eligible service credit may be purchased by the following payment methods:
1. Lump Sum Payment: You may purchase service by making a lump sum payment to the retirement system.
2. Installment Purchase of Service Agreement (IPS): If you are an employee participating in KERS, CERS, or SPRS you may have the cost of service deducted from your paycheck on a before tax or after tax basis provided your employer has arranged to make installment deductions with the retirement systems. To be eligible for payroll deduction, the purchase cost must be at least $1,000.00. You are allowed one year of installment payments for each $1,000.00 in cost with a maximum of five (5) years to pay off the cost. An interest charge of 7.75% compounded annually is applied to the cost with this payment method.
3. Rollover or Transfer From a Qualified Plan: The Internal Revenue Code allows KERS, CERS, and SPRS, which are qualified plans under Section 401(a), to accept rollovers or, in some cases, trustee-to-trustee transfers from other qualified plans such as:
  1. Section 401(a) plans
  2. Section 401(k) plans
  3. Section 403(b) accounts or annuities
  4. Section 457 governmental plan
  5. A "Conduit" or "Rollover" IRA
  6. Traditional IRA
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How do I transfer/rollover funds from a previous retirement plan to purchase service credit?
In order to complete a direct rollover or transfer of funds from another qualified plan to purchase service with KRS, you and the financial institution making the direct rollover or transfer of funds must complete a Form 4170, Direct Transfer/Rollover Acknowledgement Form. It is your responsibility to see that the completed Form 4170 is in our office prior to the due date on your service purchase cost calculation. If the transfer or rollover does not cover the entire purchase cost, a check for the remaining amount must also be received at the retirement office by the purchase due date.

See Also: Forms.

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Can I stop payment/payoff an Installment Purchase of Service (IPS) Agreement?
While Working: If you are purchasing service credit through an after tax IPS agreement, you can stop payment or payoff the remaining balance of the contract at any time by notifying the retirement office. If you stop payment and do not payoff the IPS contract, your account will only be credited with the service purchased through the last installment payment. You cannot stop payment or payoff a before tax IPS agreement while you are actively employed with a participating agency.

Upon Termination of Employment/Death: Upon termination of employment or death, you or your beneficiary will be given 60 days from termination or death to payoff the remaining balance of the IPS agreement. If you or your beneficiary choose not to pay off the remaining balance, the account will only be credited with the amount of service purchased through the last installment payment.

Members planning to retire will also be given 60 days from termination to payoff an installment purchase agreement. However, no payment for the remaining balance of the contract can be received after the member's effective retirement date.

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What happens to my Installment Purchase of Service (IPS) Agreement if I am called to active military duty or am placed on sick leave without pay?
If you are currently making payments on an IPS agreement and are placed on military leave or approved sick leave without pay, payroll reductions will be suspended for the duration of approved leave. When you return to work in a participating position, payroll deductions will be continued under the IPS agreement.

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I am writing a check to pay for a service purchase, who do I make the check out to?
All checks should be made payable to the Kentucky State Treasurer and mailed to Kentucky Retirement Systems. Remember: It is your responsibility to see that the necessary paperwork and/or payment is received in our office by the due date on your service purchase cost calculation.

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