4 KAR 1:040. Limitation on benefits.

 

      RELATES TO: KRS 6.500, 6.505, 6.515,

6.520, 6.521, 6.525, 6.530, 6.535, 6.575, 6.577, 21.345, 21.347, 21.350,

21.357, 21.360, 21.370, 21.375, 21.380, 21.385, 21.400, 21.405, 21.410, 21.415,

21.420, 21.425, 21.427, 21.440, 21.450, 21.460, 21.470, 21.480, 21.510, 21.525,

21.530, 21.540, 21.550, 21.560, 21.570, 26 U.S.C. 401(a)(16), and 415.

      STATUTORY AUTHORITY: KRS 21.540

      NECESSITY, FUNCTION, AND

CONFORMITY: KRS 21.540(3) authorizes the board of trustees of the Judicial Form

Retirement System to promulgate administrative regulations, with retroactive

effect if required by federal law, to conform the Kentucky Judicial Retirement

Plan and the Kentucky Legislators Retirement Plan with federal law and to meet

the qualification requirements under 26 U.S.C. 401(a). This administrative

regulation establishes requirements for the administration of testing

contribution and benefit limits in accordance with 26 U.S.C. 415.

 

      Section 1. Definitions. (1) "415(b)

limit" means the limitation on benefits established by 26 U.S.C. 415(b).

      (2) "415(c) limit" means the

limitation on annual additions established by 26 U.S.C. 415(c).

      (3) "Annual benefit" means a

benefit payable annually in the form of a straight life annuity (with no ancillary

benefits) without regard to the benefit attributable to after-tax employee

contributions (except pursuant to 26 U.S.C. 415(n)) and to rollover

contributions (as defined in 26 U.S.C. 415(b)(2)(A)), and with the benefit

attributable determined in accordance with Treasury Regulations located in 26

C.F.R. 1.415(b)-1.

      (4)(a) "Permissive service

credit" means service credit:

      1. Recognized by the Plan for purposes of

calculating a members benefit under the Plan;

      2. Which the member has not received

under the Plan; and

      3. Which the member shall receive only by

making a voluntary additional contribution, in an amount determined under the

Plan, which does not exceed the amount necessary to fund the benefit

attributable to the service credit.

      (b) Effective for permissive service

credit contributions made in limitation years beginning after December 31,

1997, the term may include service credit for periods for which there is no

performance of service, and, notwithstanding paragraph (a)2 of this subsection,

may include service credited in order to provide an increased benefit for

service credit which a member is receiving under the Plan.

      (5) Plan means the Kentucky Judicial

Retirement Plan and the Kentucky Legislators Retirement Plan.

 

      Section 2. This administrative regulation

shall apply to the Plans as of July 1, 2007. Subject to the provisions of this

administrative regulation, benefits paid from, and employee contributions made

to, these Plans shall not exceed the maximum benefits and the maximum annual

addition, respectively, as applicable under 26 U.S.C. 415 and Treasury

Regulations located in 26 C.F.R. 1.415(a)-1 to 1.415(j)-1.

 

      Section 3. Basic 415(b) Limitation. (1) A

member shall not receive an annual benefit that exceeds the dollar amount specified

in 26 U.S.C. 415(b)(1)(A), subject to the applicable adjustments in 26 U.S.C.

415(b) and Treasury Regulations located in 26 C.F.R. 1.415(a)-1 to 1.415(j)-1

and subject to any additional limits that are specified in this administrative

regulation.

      (2) A member's annual benefit payable in

any limitation year from a Plan shall not be greater than the limit applicable

at the annuity starting date, as increased in subsequent years pursuant to 26

U.S.C. 415(d) and the Treasury Regulations located in 26 C.F.R. 1.415(a)-1 to

1.415(j)-1.

 

      Section 4. Adjustments to Basic 415(b)

Limitation for Form of Benefit. If the benefit under the Plan is other than the

form specified in Section 3 of this administrative regulation, the benefit

shall be adjusted so that it is the equivalent of the annual benefit, using

factors prescribed in Treasury Regulations located in 26 C.F.R. 1.415(b)-1.

 

      Section 5. Benefits Not Taken into

Account for 415(b) Limit. (1) For purposes of this administrative regulation,

the following benefits shall not be taken into account in applying these limits:

      (a) Any ancillary benefit which is not

directly related to retirement income benefits;

      (b) That portion of any joint and

survivor annuity if the annuity is a qualified joint and survivor annuity; or

      (c) Any other benefit not required under

26 U.S.C. 415(b)(2) and Treasury Regulations located in 26 C.F.R. 1.415(b)-1 to

be taken into account for purposes of the limitation of 26 U.S.C. 415(b)(1).

 

      Section 6. Other Adjustments in 415(b)

Limitation. (1) If the members retirement benefits become payable before age

sixty-two (62), the limit prescribed by this administrative regulation shall be

reduced in accordance with Treasury Regulations located in 26 C.F.R. 1.415(b)-1

pursuant to the provisions of 26 U.S.C. 415(b), so that the limit (as so

reduced) equals an annual straight life benefit (when the retirement income

benefit begins) which is equivalent to a $160,000 (as adjusted) annual benefit

beginning at age sixty-two (62).

      (2) The reductions provided for in

subsection (1) of this section shall not be applicable to any preretirement

disability benefits or preretirement death benefits.

 

      Section 7. Less than Ten (10) Years of

Service Adjustment for 415(b) Limitations. (1) The maximum retirement benefits

payable to any member who has completed less than ten (10) years of service

shall be the amount determined under Section 4 of this administrative

regulation multiplied by a fraction, the numerator of which is the number of

the members years of service and the denominator of which is ten (10).

      (2) The reduction provided by this

section shall not reduce the maximum benefit below ten (10) percent.

      (3) The reduction provided by this

section shall not be applicable to any preretirement disability benefits or

preretirement death benefits.

 

      Section 8. Service Purchases Under

Section 415(n). (1) Effective for permissive service credit contributions made

in limitation years beginning after December 31, 1997, if a member makes one

(1) or more contributions to purchase permissive service credit under the Plan,

the requirements of 26 U.S.C. 415(n) shall be treated as met only if:

      (a) The requirements of 26 U.S.C. 415(b)

are met, determined by treating the accrued benefit derived from all these

contributions as an annual benefit for purposes of the 415(b) limit; or

      (b) The requirements of 26 U.S.C. 415(c)

are met, determined by treating all these contributions as annual additions for

purposes of the 415(c) limit.

      (2) For purposes of applying this

section, the Plan shall not fail to meet the reduced limit under 26 U.S.C.

415(b)(2)(C) solely by reason of this section and shall not fail to meet the

percentage limitation under 26 U.S.C. 415(c)(1)(B) solely by reason of this

section.

      (3) The Plan shall fail to meet the requirements

of this section if:

      (a) More than five (5) years of

nonqualified service credit are taken into account for purposes of this

section; or

      (b) Any nonqualified service credit is

taken into account under this section before the member has at least five (5)

years of participation under the Plan.

      (4) For purposes of subsection (3) of

this section, effective for permissive service credit contributions made in

limitation years beginning after December 31, 1997, nonqualified service credit

shall be the permissive service credit other than that allowed with respect to:

      (a) Service as an employee of the

Government of the United States, any state or political subdivision thereof, or

any agency or instrumentality of any of the foregoing (other than military service

or service for credit which was obtained as a result of a repayment described

in 26 U.S.C. 415(k)(3));

      (b) Service as an employee (other than as

an employee described in paragraph (a) of this subsection) of an educational

organization described in 26 U.S.C. 170(b)(1)(A)(ii) which is a public, private,

or sectarian school which provides elementary or secondary education (through

grade 12), or a comparable level of education, as determined under the

applicable law of the jurisdiction in which the service was performed;

      (c) Service as an employee of an

association of employees who are described in paragraph (a) of this subsection;

or

      (d) Military service (other than

qualified military service under 26 U.S.C. 414(u)) recognized by the Plan.

      (5) For service described in subsection

(4)(a), (b), or (c) of this section, the service shall be nonqualified service

if recognition of the service would cause a member to receive a retirement

benefit for the same service under more than one plan.

      (6) For a trustee-to-trustee transfer

after December 31, 2001, to which 26 U.S.C. 403(b)(13)(A) or 457(e)(17)(A)

applies (without regard to whether the transfer is made between plans maintained

by the same employer):

      (a) The limitations of subsection (3) of

this section shall not apply in determining whether the transfer is for the

purchase of permissive service credit; and

      (b) The distribution rules applicable to

the Plan shall apply to these amounts and any benefits attributable to these

amounts.

 

      Section 9. Repayments of Cashouts. Any

repayment of contributions (including interest) to the Plan with respect to an

amount previously refunded upon a forfeiture of service credit under the Plan

or another governmental plan maintained by the Commonwealth or a local

government within the Commonwealth shall not be taken into account for purposes

of the 415(b) or (c) limits. (37 Ky.R. 877; 1168; eff. 12-3-2010.)