How Does the Kentucky Retirement System Work

FT Contributor
A senior couple speaking to a financial advisor about retirement.

The state of Kentucky has multiple retirement systems in place for employees who work for the state government. These systems are funded by Kentucky Retirement Systems (KRS), which serves hundreds of thousands of employees and retirees. Though it’s a multi-billion dollar system, KRS is notoriously underfunded.

Understanding the best sources of retirement income can be confusing, so use this guide if you are retired, about to retire, or curious about what life will be like after working in the Kentucky state government and wish to know how to prepare for retirement.

Table of Contents

Types of Retirement Systems in Kentucky

There are six different retirement systems for public employees in Kentucky, two with further subdivisions. Which system you participate in depends on your profession.

Three of Kentucky’s retirement systems — the Kentucky Employees Retirement System (KERS), the County Employees Retirement System (CERS), and the State Police Retirement System (SPRS) — are also divided into three “tiers.” These tiers influence what benefits a retiree may be entitled to based on when they began paying member contributions.

  • Tier 1: Contributions made before September 1, 2008;
  • Tier 2: Contributions made between September 1, 2008 and January 1, 2014;
  • Tier 3: Contributions made on or after January 1, 2014.

Kentucky Employees Retirement System

The Kentucky Employees Retirement System can be divided into two categories: hazardous and non-hazardous.

The former group includes firefighters, paramedics, police officers, correctional officers, other employees who interact with inmates frequently, emergency medical technicians, and any other employee who encounters potentially dangerous situations. As such, this program provides better health and disability benefits than other systems.

County Employees Retirement System

The County Employees Retirement System can likewise be divided into hazardous (H) and non-hazardous (NH) subcategories. Professions considered hazardous include roles that may require some form of physical conditioning, may encounter danger, or are otherwise non-administrative.

Non-hazardous county employees encompass all other kinds of positions. CERS-NH is the most populated Kentucky retirement program.

State Police Retirement System

All full-time uniformed state police officers must participate in the State Police Retirement System. This program has the smallest member base in the state.

Teachers’ Retirement System of Kentucky

The Teachers’ Retirement System of Kentucky is a retirement plan that pays a defined amount to its members upon retirement. The benefits that members receive depend on how long educators were in service, their final average salary, and a retirement multiplier. The TRS’s service retirement annuity is guaranteed for life.

Kentucky Legislators Retirement Plan

You will need to have worked for at least 27 years as a government employee to qualify for the Kentucky Legislators Retirement Plan (KLRP), but you can deduct up to five years and retire by age 60 if you deduct one year for every five years of service credit. Otherwise, you may retire around age 65, the age of retirement in the United States when citizens can begin receiving government benefits.

All members of Kentucky’s General Assembly who were elected before January 1, 2014, are also eligible for the Legislators Retirement Defined Benefit Plan and they receive a monthly pension.

Kentucky Judicial Retirement Plan

Age requirements for the Kentucky Judicial Retirement Plan (KJRP) are similar to those of the KLRP. Justices of the Supreme Court, judges of the Court of Appeals, Family, Circuit, and District Judges are also eligible to receive a pension from the Judicial Retirement Defined Benefit Plan if they were elected prior to January 1, 2014.

Kentucky Retirement Taxes

One of the key differences between a pension plan and a 401(k) account is that your employer will fund the former (though you can make contributions) and pay you monthly, similar to receiving a regular paycheck. When it comes to the latter, it is your responsibility to make deposits into a 401(k) account, though some employers may match your contributions. You can also withdraw however much you like.

Pension plans are rare nowadays. They are more common for government employees, including retirees who are part of the KRS. Though you are retired, the money you receive from your pension plan or 401(k) account is still subject to state and federal income tax in Kentucky.


If you worked for the state and earned retirement benefits on or before December 31, 1997, the distributions from those benefits are exempt from Kentucky state income tax. Kentucky charges a flat tax rate. Benefits you earned on or after January 1, 1998, are taxable, though they may be excluded up to a certain point.

Kentucky Income Tax Form Schedule P can help you calculate the amount of Kentucky state tax you owe on your retirement income and inform you what your possible exemptions are. Note that you do not have to include your pension on your state income tax return if it is less than $31,100 per year.


Benefits that you receive from KERS, CERS, and SPRS are subject to federal income tax. A portion of every monthly benefit is non-taxable for individuals who have made taxed contributions to KRS throughout their careers.

You can choose whether you prefer to have federal income tax withheld from your monthly benefits or to make estimated payments. While having your tax withheld saves you the trouble of calculating it yourself, the amount withheld may vary from year to year based on changes regarding IRS practices. Hiring a professional to help you make estimated tax payments may save you money by finding additional exemptions you qualify for.

Social Security income is not taxed in Kentucky. You can begin collecting Social Security benefits as early as age 62. However, this age is considered retiring early, so your benefits will be significantly larger if you wait to claim them until you reach full retirement age, which depends on when you were born.

Financial Health of the Kentucky System

A 2020 study that compared the affordability, quality of life, and health expenses between all 50 states paints a grim picture of retirement in Kentucky. Kentucky’s rankings were:

  • Affordability: 32nd;
  • Health care: 48th;
  • Quality of life: 46th.

The study determined that Kentucky is overall the worst state to retire in. The best states in which to retire include Florida, Colorado, New Hampshire, Utah, and Wyoming. Kentucky’s status is unsurprising, given that it ranks 46th in terms of overall fiscal health and has a stagnant minimum wage.

According to the KRS’s Comprehensive Annual Financial Report, the KRS paid a total of $2,127,040,383 to 115,595 payees during the 2019 fiscal year; 93.64% of recipients were Kentucky residents. The total Pension Fiduciary Net Position was worth $12.9 billion as of June 30, 2019, a slight increase from the beginning of the fiscal year.

The Teachers’ Retirement System of Kentucky is not in ideal shape, either. In June 2018, the TRS possessed only 57.7% of the money it needed to fulfill its future pension obligations. Its underfunded liabilities therefore reached $14.3 billion. The Kentucky legislature has consistently paid the TRS hundreds of millions of dollars less than its yearly recommended contributions for over 10 years, which results in an extreme shortage of pension funds.

Retirement and Planning Tips

It is imperative to begin planning for your retirement years as soon as possible. Consider the following tips to improve your retirement planning:

  • Pay off your debt: You don’t want to use your pension to pay off debt once you are no longer working, so eliminate as much of your debt as possible to save yourself stress.
  • Set financial goals: Work with a professional to determine how much you should save for retirement. This way, you will have a comfortable financial base, but you won’t be saving endlessly. Remember that Social Security benefits are reduced for people who retire early.
  • Anticipate inflation: Prices in the United States are always rising, so you will likely spend more money than you expect to in retirement. Consider increasing your paycheck contributions to prepare for this outcome.

There are further ways to make the most of your finances once you are retired:

  • Move somewhere less expensive: Consider where you will live. You may choose to stay where you are, but you might decide to relocate to somewhere more affordable. Decide on a place where you will be happiest.
  • Live with friends: Retirement doesn’t have to be lonely. There is no reason why you need to live with only yourself or your spouse. Communal living with friends or other relatives can ensure you always have things to do and people to talk to while spending less money on accommodations and utilities.
  • Be careful with annuity: Annuity, as opposed to a pension plan, is a stream of retirement income that you can purchase instead of receiving money from your previous employer. Be careful of the contracts you sign, though; some annuities carry high fees.

Retirement can be challenging to navigate, so familiarize yourself with the relevant vocabulary. Work with a professional who can help you ensure that you will be able to live comfortably once you are no longer working.

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