Request By:
Mr. Bobby McKee, Operations Manager
Kentucky Retirement Systems
226 West Second Street
Frankfort, Ky. 40601Hon. Robert K. Cullen, Manager
Legislators Retirement Fund
P.O. Box 791
Frankfort, Ky. 40602
Opinion
Opinion By: Steven L. Beshear, Attorney General; Patrick B. Kimberlin, III, Assistant Attorney General
This is in response to your joint letter to this office requesting an interpretation of KRS 6.535, a recently enacted statutory provision, which reads as follows:
"When a legislator, at the time he obtains membership in the Legislators Retirement Plan, has service credit in the Kentucky Employes Retirement System, County Employes Retirement System, or Teachers Retirement System, earned for service as a legislator, which credit by virtue of Section 13 of this Act will become credit in the Legislators Retirement System, such other system shall transfer to the Legislators setirement Fund an amount equal to the employe's and employer's contributions attributable to that credit, together with interest on each such contribution, from the date it was made to the date of transfer at the statutory rate, if any, applicable to such contributions, or if none, at the rate of interest assumed by such other system for actuarial purposes at the time the contribution was made." (Emphasis ours).
As you are aware, the 1980 Session of the Kentucky General Assembly created a retirement system for state legislators, the Legislator's Retirement Fund (LRF). As of August 31, 1980 110 legislators have elected to participate in the new Legislator's Retirement Fund (LRF), effective as of July 1, 1980. Prior to that date these legislators had been members of the Kentucky Employes Retirement System (KERS). The question presented to this office is how should KRS 6.535 be interpreted as to the computation of interest on the employer's and employe's contributions to be transferred from the KERS to the LRF for those legislators who have elected to transfer their membership from the former retirement system to the latter.
It should be noted that the underscored language in KRS 6.535 specifically dictates the manner in which interest on the employe's contributions and the employer's contributions are to be determined. The statute provides that the statutory rate of interest, if any, is to be applied from the date the contribution is made. If there is no statutory rate, the rate of interest assumed by the KERS for actuarial purposes at the time the contribution was made is to be utilized. With the foregoing in mind, we shall now turn to a consideration of how the interest should be computed on employer's and employe's contributions.
EMPLOYER'S CONTRIBUTIONS
The KERS has no statutory interest rate for the employer's contributions. However, it does have a rate of interest assumed for actuarial purposes which has been in effect each year during which the contributions in question have been made. This actuarially assumed rate of interest has varied during the period in issue from 3 % to the current rate of 6 %. We have been advised that this actuarially assumed rate is applicable not only to the employer's contributions but is used also for the employe's contributions.
Where a statute is unambiguous it should be given effect according to its literal language. Hilliard v. United States, 310 F.2d 631 (6th Cir. 1962). It is our opinion that the pertinent language in KRS 6.535 dealing with interest rates is clear and unambiguous on its face and therefore should be interpreted literally. Barrett v. Stephany, Ky., 510 S.W.2d 524 (1974);Barnett v. Commonwealth, Ky.App., 566 S.W.2d 794 (1978). A literal interpretation of that statute requires the conclusion that since there is no statutory interest rate fixed for the employer's contributions for those legislators who have participated in the KERS, KRS 6.535 mandates that the rate of interest assumed for actuarial purposes by the KERS at the time the contribution was made be used to determine the amount of interest which must now be transferred on those contributions. Furthermore, we believe that the KERS must transfer to the LRF the interest thereon compounded annually at the assumed interest rate in effect at the time the contribution was made. Thus, if the assumed actuarial rate in 1964 was at 3 %, the LRF would be entitled to receive the amount of the employer's contribution for 1964 plus 3 % interest thereon. Thereafter, the LRF would be entitled to 3 % interest on the foregoing total compounded annually at 3 % in each subsequent year.n1
EMPLOYE'S CONTRIBUTIONS
Although there is a statutory rate of interest in the KERS law pertaining to employe's contributions we do not believe it is applicable here. KRS 61.575(2) provides that the money in the member's contribution account shall be credited with interest at a rate to be determined by the Board of Trustees of the KERS, but at not less than 2 % per annum. We are advised that the actual rate of interest credited to these employe's contributions in the member's KERS account has been set by the Board at 3 % during the years in question.
But, KRS 61.575(2) merely makes this rate of interest part of the "accumulated contributions" of the member to which he is entitled to be refunded should he leave the KERS. KRS 61.575(1). Thus, this particular statutory interest rate has no relevance to the amount of interest either actually earned or actuarially assumed to be earned on the member's account. It merely reflects the amount of interest which the KERS will return to the member should he withdraw from the retirement system. Accordingly, it is our opinion that the KERS must transfer to the LRF interest on the employe's contributions accumulated in each legislator's member's account at the actuarially assumed interest rate in effect at the time the contribution was made compounded annually 2 at that same interest rate.
Footnotes
Footnotes
2 It is our opinion that since KRS 6.535 is unambiguous and clear on its face, the only actuarially assumed interest rate applicable to any particular contribution (employer or employe) is the one in effect "at the time the contribution was made." Fitzpatrick v. Crestfield Farm, Inc., Ky.App., 582 S.W.2d 44 (1978); Barnett v. Commonwealth, Ky.App., 566 S.W.2d 794 (1978). Thus, only that interest rate may be used when compounding annually the interest earned in each successive year.