Kentucky CERS Retirement Decisions: Options, PLSO, Refund

Updated October 16, 2026. Quick answer: A Kentucky CERS member picks a payment option when retiring, and a later beneficiary change cannot alter it. Since January 1, 2024 the partial lump sum option pays 12, 24, 36, 48 or 60 times a monthly benefit up front, with the monthly payment actuarially reduced and 20% withheld unless the money is rolled over. Tier 3 vests at 60 months. A Tier 1 refund leaves out employer contributions and forfeits health insurance and the $5,000 death benefit, and a Tier 1 member who returns to work within 45 days of leaving must pay back a refund.

What this page covers and what it does not

This page covers the County Employees Retirement System (CERS), one of the three systems the Kentucky Public Pensions Authority (KPPA) runs. The KPPA retiree handbook describes it this way: “Established July 1, 1958 for local government and classified school board employees.”

The page works from the Retiree Handbook (marked REV 09/2021), the leaflet on the Partial Lump Sum Option (REV 02/2024), the Benefit Tier Comparison (REV 05/2026), and the Tier 1 and Tier 3 refund web pages as read in October 2026. The handbook’s option list predates the partial lump sum option, which took effect January 1, 2024. The Kentucky Revised Statutes, chapters 61 and 78, read at apps.legislature.ky.gov in October 2026, are quoted where a statute answers a point the documents leave open. The KRS 61.635 text read is the version effective July 15, 2026; amendments after that were not checked.

KPPA sorts members into three tiers by participation date, defined in the comparison as the “official date when a member began paying contributions and earning service credit with a state-administered retirement system used to determine benefits”. The page covers Tiers 1, 2 and 3, hazardous and nonhazardous, wherever the documents state a point, and says so where only one tier is documented. Retirement ages, benefit factors, disability and retiree health plan prices are outside it. The state employee system is covered at Kentucky KERS retirement decisions.

Which tier you are in decides most of what follows

Tier 3 is the group the handbook cover labels “Members participating on or after January 1, 2014”, and the comparison labels that plan a “Hybrid Cash Balance Plan”, so its pension comes from an account balance. Tiers 1 and 2 are defined benefit plans.

How the monthly pension is figured

For the two defined benefit tiers the comparison prints “Final Compensation X Benefit Factor X Years of Service”. For Tier 3 it prints “Accumulated Account Balance / Actuarial Factor”, with “Age at retirement and type of service (haz or nhaz) determine the actuarial factor”. The pages read give no factor tables, so a dollar figure needs a KPPA estimate.

The payment option election

The handbook names these options where it lists the ones that allow a later change of beneficiary: “Basic, Annuity, Life with 10, 15, or 20 Years Certain, or the Social Security Adjustment Option without Survivor Rights”. It also refers to survivorship options and a Pop-Up option, and the PLSO leaflet names a Survivorship 100% Option. The pages read do not define each option or give a reduction percentage.

The statute does define the options, and it sets no reduction percentage. KRS 61.635(1) says: “The amount of any optional retirement allowance shall be actuarially equivalent to the amount of retirement allowance otherwise payable to the member.” The survivorship options continue the allowance to a beneficiary after the member’s death. Subsection (3) says: “The member may elect to receive a decreased retirement allowance during his or her lifetime and have two-thirds (2/3) of the retirement allowance continue after the member’s death to his or her beneficiary during the lifetime of the person.” Subsection (2) continues the whole allowance and subsection (4) one-half of it. Subsection (16)(a) adds: “The options described in subsections (2), (3), (4), (8)(b), (10), (12)(b), and (13) of this section shall be extended to the member only if the designated beneficiary is a person or a special needs trust.”

The period certain options carry age limits. KRS 61.635(5) says: “The member less than age seventy-six (76) may elect to receive a monthly retirement allowance during his or her lifetime which shall guarantee payments for one hundred twenty (120) months.” Subsection (6) sets the test at age sixty-eight (68) for one hundred eighty (180) months and subsection (7) at age sixty-two (62) for two hundred forty (240) months. For the pop-up option, subsection (10) says: “If the beneficiary dies prior to the member, or if the beneficiary is the member’s spouse and they divorce, the member’s retirement allowance shall increase to the amount that would have been payable as a single life annuity.”

For the Social Security adjustment option without survivor rights, KRS 61.635(8)(a) says: “The member may elect to receive an increased retirement allowance from his or her effective retirement date through the month he or she attains age sixty-two (62) at which time his or her retirement allowance shall be decreased for the remainder of his or her lifetime;”

On a Basic or annuitized option the handbook says “If the retired member selected the Basic Option or Annuitized Benefit and has not recovered all the member contributions and interest which had accumulated in his or her retirement account, the beneficiary will receive the remaining account balance.” On a survivorship option it warns: “Monthly benefits will not continue if the member’s estate has become the beneficiary.” The trade-off between single-life and survivor options is covered at single-life versus joint-and-survivor pension.

What cannot be changed after retirement

A beneficiary change does not reopen the option. The handbook says “Effective June 29, 2021, retired members can change their beneficiary after retirement under certain conditions.” For those who chose the Basic, Annuity, Social Security Adjustment without Survivor Rights, or a life with period certain option, it says “you may change your beneficiary designation at any time after you retire”, but “retired members making such a beneficiary change cannot change the payment option he or she selected at retirement”. The pages read do not describe such a change for survivorship options, or a deadline after which an election can no longer be changed before retirement.

The statute answers both points. KRS 61.590(3) says: “The member or beneficiary shall file at the retirement office the form entitled ‘Estimated Retirement Allowance’ after he or she has checked one (1) payment option of his or her choice, signed the document, and had his or her signature witnessed.” It also says: “A member shall not have the right to select a different payment option on or after the first day of the month in which the member receives his or her first retirement allowance or after the effective date of a deferred retirement option as provided by subsection (6) of this section, except as provided by KRS 61.542(5).”

KRS 61.542(5) limits beneficiary changes after the first allowance. The exception for the basic, period certain and Social Security adjustment options reads: “A retired member receiving the monthly retirement allowance under the basic payment option, a period certain option as provided by KRS 61.635(5) to (7), or the Social Security adjustment option without survivor rights as provided by KRS 61.635(8)(a) may elect to change his or her beneficiary at any time by filing a beneficiary change form as prescribed by the board with the retirement office.” A survivorship option is not on that list. The other exceptions are the remarriage election below and paragraphs (5)(c) and (5)(d), which make the estate the beneficiary when the beneficiary dies first or the couple has divorced, unless the member named a new beneficiary, and reinstate an ex-spouse beneficiary who has remarried the member.

The handbook’s one exception is marriage: retirees who marry or remarry “may make a one-time election within 120 days of marriage or remarriage to provide monthly survivorship benefits to a new spouse”. KRS 61.542(5)(b) says: “A retired member receiving a monthly retirement allowance who marries or remarries following retirement may make a one (1) time election within one hundred twenty (120) days of marriage or remarriage to provide monthly survivorship benefits to his or her new spouse by: 1. Designating his or her new spouse as beneficiary by filing a beneficiary change form as prescribed by the board with the retirement office; and 2. Selecting a new monthly retirement allowance option under one (1) of the survivorship options provided by KRS 61.635(2), (3), (4), and (8)(b).” Separately, “If the beneficiary dies or divorces the retired member, state law provides the member’s estate becomes the beneficiary.” If the divorce occurs after the first day of the month in which the retiree receives the first payment, the estate becomes the beneficiary of the account, and the handbook says “Your estate will not be entitled to payments under a survivorship payment option.”

The partial lump sum option (PLSO)

The leaflet says “House Bill 506 (2023 Regular Session) established a PLSO, with and without survivor rights, as a payment option.” KPPA describes an option where “members may choose this payment option which includes a one-time lump-sum payment and a monthly payment”.

Without survivor rights, the leaflet describes “a one-time payment equal to 12, 24, 36, 48, or 60 times the monthly” benefit “under the Basic or Annuity payment option, plus a monthly payment to the retired member until death”. With survivor rights it uses the Survivorship 100% Option instead. In both versions the monthly payment is “actuarially reduced”. The leaflet lists the factors as “Service type (hazardous or nonhazardous)” and “The member’s age when electing this payment option”, plus, for the survivor version, the beneficiary’s age. The pages read give no reduction percentage.

The statute does not set one either. KRS 61.635(12)(a) says: “A member may elect to receive a one-time lump-sum payment equal to twelve (12), twenty-four (24), thirty-six (36), forty-eight (48), or sixty (60) monthly retirement allowances payable under the applicable retirement formula for the system and receive a reduced monthly retirement allowance payable for his or her lifetime.” Paragraph (12)(b), for the version with survivor rights, says: “The reduced retirement allowance shall be continued after the member’s death to his or her beneficiary during the lifetime of the person.” Paragraph (12)(c)1 requires the Authority to give, in every retirement estimate that includes the partial lump sum option, the additional months of service a member would have to be employed to recoup the actuarial reduction. Subsection (12) names no tier and no hazardous or nonhazardous limit.

The cost of the lump sum is a lower monthly payment for life. The leaflet says an estimate “Shows how much longer you would have to work in order to select the PLSO” and still receive a comparable monthly payment.

A computed example from an assumed $2,000 monthly Basic benefit, not a CERS figure: a lump sum of 36 times the monthly benefit is a computed $72,000. If paid directly and wholly taxable, the default 20% withholding would be a computed $14,400, leaving a computed $57,600 before any further tax or penalty. The monthly payment would drop by an amount the pages read do not state.

Paying and rolling over the PLSO lump sum

The leaflet says “The lump-sum payment will be processed two to three weeks” after the effective retirement date if valid forms are submitted: “Form 6010, Payment Option Selection” and “Form 6025, Direct Rollover/Direct Payment Election Form for an Eligible Rollover Distribution”. “The one-time lump-sum payment is an eligible rollover distribution subject to special federal tax rules.” It also says “Your payment will be taxed if you elect a direct payment. KPPA automatically withholds 20%.” It adds that “you cannot withhold less than the default rate of 20%”, and “Your payment will not be taxed by KPPA if you elect a direct rollover.” See 20% withholding on a pension lump sum for how withholding differs from the tax finally owed.

A direct rollover can go to a “Traditional Individual Retirement Account/Annuity” or a “Roth Individual Retirement Account/Annuity”, among others. For a Kentucky Deferred Compensation account, “KDC will not accept 60-day indirect rollovers”. The lump sum cannot buy service credit: “You cannot purchase service credit with the lump sum payment.” “Service purchases must be made prior to retiring.”

If you leave before retiring: keep the account, retire or take a refund

The Tier 1 page lays out the choice: “Upon termination of employment, a member has three options regarding their retirement account: (1) retire if eligible, (2) leave the contributions in their account until eligible to retire, or (3) take a refund of their account balance.” See pension refund versus leaving it for the general trade-off.

On keeping the account, the Tier 3 page says “Your account will continue to earn 4% interest on the accumulated account balance.” It adds that “if you are no longer participating, your account would not be eligible for any Upside Sharing interest”. KRS 78.5512(4)(c) says: “If the member did not contribute to the hybrid cash balance plan or the Kentucky Retirement Systems during the fiscal year, the interest credit added to the member’s account for that fiscal year shall be determined by multiplying the member’s accumulated account balance on June 30 of the preceding fiscal year by four percent (4%).” For a year in which the member does contribute, paragraph (4)(b) sets the credit at four percent (4%) plus seventy-five percent (75%) of the system’s geometric average net investment return in excess of a four percent (4%) rate of return. Paragraph (4)(e) says: “No employer pay credits or interest credits shall be provided to a member who has taken a refund of contributions as provided by KRS 61.625 or who has retired and annuitized his or her accumulated account balance as prescribed by this section.” The employer pay credit is four percent (4%) of creditable compensation for nonhazardous members (KRS 78.5512(2)(b)) and seven and one-half percent (7.5%) for hazardous members (KRS 78.5516(2)(b)). On vesting: “If you are vested (60 months of service) when you leave your job, you may apply for retirement benefits when eligible and receive a lifetime monthly benefit.” KRS 78.5512(5)(a) puts the line at five years of service credit: “Upon termination of employment, a member who has less than five (5) years of service credited under KRS 16.543(1), 61.543(1), and 78.615(1), who elects to take a refund of his or her accumulated account balance as provided by KRS 61.625, shall forfeit the accumulated employer credit, and shall only receive a refund of his or her accumulated contributions.” Paragraph (5)(b) gives a member with five (5) or more years of service credit a full refund of the accumulated account balance. KRS 78.5516(5) has the same two paragraphs for hazardous members.

This is a KPPA example, not an assumed one. Dividing the printed balance by the printed factor, as the comparison’s Tier 3 formula directs, gives a computed $442.96, matching the printed $442.96. The factor is for age 65 only.

What a refund returns and what it gives up

For Tier 3 the page says “Members who are vested are eligible for a refund of their accumulated account balance.” The page continues: “Members who are not vested are eligible for a refund of the member portion of the account balance.” “A non-vested refund does not include the Employer Pay Credits, the interest on the pay credit balance, or upside sharing interest.” For a Tier 1 member, the page says “they will receive their individual retirement contributions plus any accumulated interest, but will not receive a refund of any employer contributions”.

A Tier 1 refund also gives up future benefits. The Tier 1 page says “By taking a refund, members forfeit eligibility for future benefits including health insurance and the $5,000 death benefit.” The comparison says “Only members receiving a monthly pension benefit may participate in the health insurance program.”

Paperwork, tax, the 45-day rule and coming back

The Tier 1 page names Form 4525, “Application for Refund of Member Contributions and Direct Rollover/Direct Payment Selection”. It says “A refund cannot be processed until at least 45 days following the termination date, provided all required information has been submitted by the member and their employer.” The Tier 3 page says “KPPA is required to withhold 20% for federal income taxes.” “The amount withheld is not a penalty tax and will apply toward your federal tax liability for the year in which the refund is issued.” Taxes on pensions in Kentucky are at Kentucky retirement taxes and does Kentucky tax pensions.

A quick return to work undoes the refund. The Tier 1 page says that a member who returns to the same employer, or another employer in the same system, within 45 days of leaving is “ineligible to receive the refund” and “will be required to pay back the refund if payment has been issued”. The statute gives the refund right but not the 45 day figures. KRS 61.625(1)(a) says: “Prior to the member’s effective retirement date, a member if living, or if not living, his or her designated beneficiary, shall have the right to request a refund of his or her accumulated account balance if the member’s employment has been terminated and the member is not participating in the same system.” The 45 day figures on this page do not appear in the 124 sections of KRS chapters 61 and 78 archived for this check (a search of all of them for forty-five and for 45 days found nothing); they come from the KPPA refund page. Later, the page says “the member may be eligible to purchase their refunded service”, but “The purchase will not reestablish the member’s original participation date which determines the benefit tier they are in.”

Buying service credit

The comparison lists “More than 30 types of service a participating member may purchase in order to increase service credit.” That is stated for Tiers 1 and 2; for refunded service it says “Recontribution of Refunded Service purchased on or after 1/1/2014 will not alter the member’s participation date; however, the purchase of Omitted Service will reinstate the original participation date for that service.” Costs are not given in the pages read. The pension buyback calculator can set up the break-even. The lump sum from the PLSO cannot pay for a purchase.

Health insurance and the death benefit depend on the monthly pension

The handbook says insurance “shall not be provided until the member has earned at least one hundred twenty (120) months of service in the state-administered retirement systems” for members who began between July 1, 2003 and August 31, 2008, and “at least one hundred eighty (180) months” for Tier 2 and Tier 3. On the death benefit, the handbook says “If a retired member is receiving a monthly benefit based on at least 48 months of service credit, under most circumstances KPPA will pay a $5,000 Death Benefit payment to the beneficiary designated by the member.”

The statute states the figure without the words “under most circumstances”. KRS 78.5538(1)(a) says: “Upon the death of a retired member of the system, who was receiving a monthly retirement allowance based on a minimum of forty-eight (48) months of service, a death benefit for the beneficiary of five thousand dollars ($5,000) shall be paid.” Subsection (3) limits the benefit: “The five thousand dollar ($5,000) death benefit paid to the designated beneficiary shall not be subject to garnishment as an asset of the retired member’s estate, except if: (a) At the time of the retired member’s death, a debt to the County Employees Retirement System remains on his or her account, the balance owed shall be deducted from the five thousand dollar ($5,000) death benefit; (b) After the death of the retired member, an overpayment of benefits occurs, the balance owed for the overpayment shall be deducted from the five thousand dollar ($5,000) death benefit; or (c) At the time of the retired member’s death, the designated beneficiary is the retired member’s estate.”

If the retired member had more than one CERS account, or is also eligible for the Kentucky Retirement Systems death benefit under KRS 61.705, the combined payment to the named beneficiary is capped at five thousand dollars ($5,000) (KRS 78.5538(1)(b)).

Cost-of-living adjustments

The handbook says “All COLAs to KPPA recipients must be enacted by the General Assembly.” It adds that a COLA “may only be paid if the funding level in the particular system in which the COLA is being provided is greater than 100% and the COLA payment will not reduce the funding level below 100%, or if the legislature prefunds the COLA”. The pages read do not say whether a COLA was granted in any year. KRS 78.5518(2)(a) says: “Effective July 1, 2009, and on July 1 of each year thereafter, a recipient of a retirement allowance under KRS 78.510 to 78.852 shall have his or her retirement allowance increased by one and one-half percent (1.5%), if: 1. The funding level of the pension fund is greater than one hundred percent (100%) and subsequent legislation authorizes the use of any surplus actuarial assets to provide an increase in retirement allowances described by this subsection for the pension fund which has the surplus actuarial assets; or 2. The General Assembly directs payment of employer contributions to fully prefund the increase described by this subsection in the year the increase is provided.” Paragraph (2)(d) reduces the increase pro rata for a recipient who has been receiving a benefit for fewer than twelve (12) months before the increase date. Paragraph (2)(e) says: “The General Assembly reserves the right to suspend or reduce the benefits conferred in this subsection if, in its judgment, the welfare of the Commonwealth so demands.”

Tax on the monthly pension

The handbook says “All benefits attributable to service earned on or before December 31, 1997 are exempt from Kentucky income tax.” “The portion of the member’s benefits earned January 1, 1998 and after is subject to Kentucky income tax; however, this income may be excludable up to a certain amount” (the handbook points to Schedule P in the Kentucky income tax forms for the exclusion amount and calculation)

What the IRS adds on tax

A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of CERS’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The PLSO leaflet and the refund pages describe the same 20% default withholding on a direct payment, with a direct rollover as the alternative. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.

On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan”, provided the employee separated from service during or after the year of reaching age 50 or 25 years of service under the plan, whichever is earlier. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.

Where the sources disagree

First, the form name. The handbook calls Form 6010 “Estimated Retirement Allowance”, while the PLSO leaflet calls it “Payment Option Selection”.

Second, the Tier 3 non-vested refund. The Tier 3 page says: “This includes the member contribution, the member interest, and member upside sharing interest.” Yet its next sentence says the refund does not include “upside sharing interest”, and the comparison also leaves out “upside sharing interest” for members with fewer than 60 months. The documents do not reconcile these, so KPPA should confirm.

Third, the 2021 handbook offers an actuarial or lump sum refund, and the later leaflet adds a partial lump sum. The pages read do not say how they relate.

What this page could not settle

• The pages read do not state the reduction percentage for any survivorship option or the PLSO.
• The handbook and leaflet name the Basic, Annuity, Life with Years Certain, Social Security Adjustment and Pop-Up options without describing their payment terms. KRS 61.635, quoted above, supplies the terms of the survivorship, years certain, Social Security adjustment and pop-up options. KRS 61.542(5)(f) says: “For purposes of this subsection, ‘basic payment option’ means the lifetime monthly retirement allowance otherwise provided to the retired member under KRS 16.505 to 16.652, 61.510 to 61.705, or 78.510 to 78.852 that is not one (1) of the optional retirement plans provided under KRS 61.635.” The Annuity option by that name was not located in the statute sections read.
• The pages read do not state whether a spouse must consent to a payment option, the PLSO or a refund.
• The pages read do not use the word vesting for Tier 1 or Tier 2, but the comparison lists service minimums at age 65 for an unreduced benefit: at least 48 months for Tier 1 nonhazardous members, with those at 1 to 47 months able to elect a lifetime benefit actuarially equivalent to twice their contributions and interest, and at least 60 months for Tier 2. The Tier 2 refund web page was not read; the Tier 2 entry comes from the comparison, assigned by column position in a PDF text extraction.
• The pages read do not state whether the PLSO is limited by tier or service type, or how the accumulated account balance in its survivor rule is figured for Tier 1 and Tier 2.
• The pages read do not state whether a Tier 2 or Tier 3 refund forfeits the $5,000 death benefit, give Tier 3 factors beyond the age 65 example, or give service purchase costs.
• Survivor benefits when an active member dies were not covered, and the Summary Plan Description was not read. No CERS membership count is stated on this page.

Common mistakes

• Treating a beneficiary change as a way to change the payment option; the handbook says a retiree making that change cannot change the option selected at retirement.
• Choosing the PLSO without comparing the lower monthly payment to the Basic or Annuity amount in the KPPA estimate.
• Taking a direct payment of a lump sum or refund and expecting the full amount; KPPA withholds 20% for federal tax unless the money is rolled over directly.
• Taking a refund without weighing what it gives up: the Tier 1 page says health insurance and the $5,000 death benefit are forfeited, and employer contributions are not returned.

Related on this site: Kentucky KERS retirement decisions, Kentucky retirement taxes, does Kentucky tax pensions, pension refund versus leaving it, single-life versus joint-and-survivor pension, 20% withholding on a pension lump sum and public pension retirement decisions by system.

Sources

• Kentucky Public Pensions Authority, Retiree Handbook (REV 09/2021): https://kyret.ky.gov/Publications/Books/Retiree%20Handbook.pdf
• Kentucky Public Pensions Authority, Understanding the Partial Lump Sum Option (PLSO) (REV 02/2024): https://kyret.ky.gov/Publications/Books/Partial%20Lump%20Sum%20Option%20(PLSO)%20FAQs.pdf
• Kentucky Public Pensions Authority, Benefit Tier Comparison (REV 05/2026): https://kyret.ky.gov/Publications/Books/Benefit%20Tier%20Comparison.pdf
• Kentucky Public Pensions Authority, Tier 3 Refund of Contributions web page (kyret.ky.gov, read October 2026): https://kyret.ky.gov/Members/Tier-3/Pages/Refund-of-Contributions.aspx
• Kentucky Public Pensions Authority, Tier 1 Refund of Contributions web page (kyret.ky.gov, read October 2026): https://kyret.ky.gov/Members/Tier-1/Pages/Refund-of-Contributions.aspx
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558

Sources: the primary documents linked above, read on October 16, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.