102 KAR 1:230. Limitations on benefits.
RELATES TO: KRS 161.611, 26 U.S.C. 415
STATUTORY AUTHORITY: KRS 161.310, 161.716
NECESSITY, FUNCTION, AND CONFORMITY: KRS 161.310 requires the Board of Trustees of the Teachers' Retirement System of the state of Kentucky to promulgate administrative regulations for the administration of the funds of the retirement system and for the transaction of business. KRS 161.716 requires the Board of Trustees to promulgate administrative regulations as are necessary to remove any conflicts with federal laws and to protect the interests of the members and survivors of members of the retirement system. This administrative regulation establishes the limitations on benefits required by 26 USC 415 of the Internal Revenue Code.
Section 1. Definitions. (1) "Defined dollar benefit limitation" means $160,000, as adjusted, effective January 1 each year, in the manner as the Secretary of the United States Treasury shall prescribe, pursuant to 26 USC 415(d) of the Internal Revenue Code, and payable in the form of a straight life annuity. A limitation as adjusted under 26 USC 415(d) shall apply to limitation years beginning with or within the calendar year for which the adjustment applies.
(2) "Maximum permissible benefit" means the defined benefit dollar limitation (adjusted or limited, if required, according to Section 2 of this administrative regulation).
Section 2. Adjustments and Limitations. (1) If the member has fewer than ten (10) years participation in the plan, the defined benefit dollar limitation shall be multiplied by a fraction. The numerator shall be the number of years (or part thereof) of participation in the plan, and the denominator shall be ten (10).
(2) If the benefit of a member begins prior to age sixty-two (62), the defined benefit dollar limitation applicable to the participant at the earlier age shall be an annual benefit payable in the form of a straight life annuity, beginning at the earlier age, that is the actuarial equivalent of the defined benefit dollar limitation applicable to the member at age sixty-two (62) (adjusted under subsection (1) of this section, if required). The defined benefit dollar limitation applicable at an age prior to age sixty-two (62) shall be determined as the lesser of:
(a) The actuarial equivalent (at the earlier age) of the defined benefit dollar limitation computed using the interest rate and mortality table specified by the system actuary; and
(b) The actuarial equivalent (at the earlier age) of the defined benefit dollar limitation computed using a five (5) percent interest rate and the applicable mortality table as specified by the system actuary. Any decrease in the defined benefit dollar limitation determined in accordance with this subsection shall not reflect a mortality decrement if benefits are not forfeited upon the death of the participant. If any benefits are forfeited upon death, the full mortality decrement shall be taken into account.
(3) If the benefit of a participant begins after the participant attains age sixty-five (65), the defined benefit dollar limitation applicable to the member at the later age shall be the annual benefit payable in the form of a straight life annuity, beginning at the later age, that is actuarially equivalent to the defined benefit dollar limitation applicable to the participant at age sixty-five (65) (adjusted under subsection (1) of this section, if required). The actuarial equivalent of the defined benefit dollar limitation applicable at an age after sixty-five (65) shall be determined as follows:
(a) The lesser of the actuarial equivalent (at the later age) of the defined benefit dollar limitation computed using the interest rate and mortality table specified by the system actuary; and
(b) The actuarial equivalent (at the later age) of the defined benefit dollar limitation computed using a five (5) percent interest rate assumption and the mortality table specified by the system actuary. For these purposes, mortality between age sixty-five (65) and the age at which benefits commence shall be ignored.
(4) If a participant has fewer than ten (10) years of service with the employer, the defined benefit compensation limitation shall be multiplied by a fraction. The numerator shall be the number of years (or part thereof) of service with the employer, and the denominator shall be 10.
Section 3. Effective Date. This administrative regulation shall be effective for limitation years ending after December 31, 2001, except as provided in Section 2(4) of this administrative regulation.
Section 4. Effect on Members. Benefit increases resulting from the increase in the limitations of 26 USC 415(b) of the Internal Revenue Code shall be provided to all current and former members, with benefits limited by 26 USC 415(b), who have an accrued benefit under the plan immediately prior to the effective date. These benefit increases shall not be provided to current and former members who have an accrued benefit resulting from a benefit increase solely as a result of the increases in limitations under 26 USC 415(b). (28 Ky.R. 2112; Am. 2324; eff. 5-16-2002.)