COVINGTON — City of Covington employees participating in the city’s defined benefit plan can now purchase additional years of service to get more retirement benefits.
The City Council approved an amendment to the defined benefit plan Monday night that allows participants to purchase additional years of service through voluntary, after-tax contributions; transfer of funds from an existing 457 b deferred compensation plan; or by a transfer from an IRA account.
Up to seven additional years of service can be purchased, said City Manager Leigh Anne Knight. Participants can purchase a period of severance if they previously left city employment or a period of future service.
The additional benefit is determined by the number of years elected by the participant, according to an executive summary of the plan.
The benefit formula is based on the participant’s average five-year compensation. If the participant buys a benefit expected to commence more than 30 days from the purchase date, compensation will be projected based on an assumed salary increase of 2.5 percent per year.
Normal retirement date is the first of the month coincident with or following an employee reaching age 62, or, if an employee has worked for the city for many years, when age and service equals or exceeds 95. The purchase of additional years of service could allow an employee to attain the “age 95 and out” provision.
The purchase would be counted for both the benefit purchase and for vesting purposes. Under the current vesting schedule, employees must work for the city for 10 years to be 100 percent vested. Employees entering the plan prior to July 1, 2002 are 100 percent vested after four years.
To be eligible, employees must have been hired on or before June 6, 2011 and must have opted out of transferring their accrued benefit to a defined contribution plan.
The cost of additional years is determined in part by an employee’s age. The city will provide calculation by an actuary one time; if an employee makes another purchase, the employee will have to pay for the calculation, Knight said.