Retirement offerings typically fall into one of two types of plans: defined benefit and defined contribution. A defined-benefit plan guarantees certain benefits based on a formula, usually incorporating an employee’s years of service and average annual pay. Defined-benefit plans are usually referred to as pensions and sometimes include retiree health benefits.
A defined-contribution plan provides benefits based on the amount of money an employee contributed to the account and how his or her investments performed over time. Typical examples of defined-contribution plans include 401(k), 457, or IRA accounts.
After individual city pensions were closed in 1988 (except Lexington’s police and fire fund), if city officials wanted to offer a defined-benefit pension system, then their employees were required to join the County Employees Retirement System (CERS). Employees are covered under either hazardous duty – most police, fire, and EMS employees – or nonhazardous duty. According to state statute, hazardous duty employees pay 8% of their salaries to CERS while nonhazardous duty employees pay 5%. All employees hired after August 31, 2008, pay an additional 1% to fund health insurance benefits upon retirement. Employees hired on or after January 1, 2014, participate in a cash-balance plan. This plan is still considered a defined-benefit plan even though they operate more like defined-contribution plans.
The employer contribution rate is determined each year by the County Employees Retirement System Board of Trustees. Once a city joins CERS, it cannot take its retirees out of the system. In 2018, the General Assembly passed a KLC initiative to limit drastic increases in CERS employer contribution rates due to assumption changes approved by the KRS Board. The higher employer contribution rates have largely been phased in since then.
In the 2020 Regular Session, state legislators passed House Bill 484 to separate CERS from the Kentucky Retirement Systems (KRS). CERS now has its own board of trustees while the KRS board still oversees both the Kentucky Employees Retirement System (KERS) and State Police Retirement System (SPRS). The Kentucky Public Pensions Authority (KPPA) board – comprised of members from both the CERS and KRS boards – oversees personnel and day-to-day administrative services.
CERS Contribution Rates
|
Employee |
Employee |
Employer |
Employer |
Employer |
|
Nonhazardous |
5% or 6% |
26.95% |
26.79% |
23.34% |
|
Hazardous |
8% or 9% |
44.33% |
49.59% |
43.69% |
Note: These rates have more than tripled for CERS nonhazardous and more than doubled for CERS hazardous since 2004. The employer contributions are in addition to salary costs and only pay for future retirement health care costs and pensions; it does not cover any current benefits, such as health or dental insurance.
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