KRS 61.690: Exemption of retirement allowances -- Taxability after December 31, 1997 -

- Domestic relations orders.

(1) (a) Except as otherwise provided by this section and KRS 61.705(4), all

retirement allowances and other benefits accrued or accruing t o any person

under the provisions of KRS 61.510 to 61.705, 16.505 to 16.652, and 78.510

to 78.852, and the accumulated account balance and cash securities in the

funds created under KRS 61.510 to 61.705, 16.505 to 16.652, and 78.510 to

78.852, are hereby exempt from any state, county, or municipal tax, and shall

not be subject to execution, attachment, garnishment, or any other process,

and shall not be assigned.

(b) A recipient or their legal representative may direct that the recipient's

retirement benefi ts be paid to a trust that permits the recipient unrestricted

access to the amounts held in the trust or if the trust is for the sole benefit of

the recipient. The recipient's direction is not an assignment or transfer of

benefits.

(2) Notwithstanding the provisions of subsection (1) of this section, retirement benefits

accrued or accruing to any person under the provisions of KRS 61.510 to 61.705,

16.505 to 16.652, and 78.510 to 78.852 on or after January 1, 1998, shall be subject

to the tax imposed by KRS 141.020, to the extent provided in KRS 141.010 and

141.0215.

(3) Qualified domestic relations orders issued by a court or administrative agency shall

be honored by the retirement system if:

(a) The benefits payable pursuant to the order meet the requireme nts of a

qualified domestic relations order as provided by 26 U.S.C. sec. 414(p). The

retirement system shall follow applicable provisions of 26 U.S.C. sec. 414(p)

in administering qualified domestic relations orders;

(b) The order meets the requirements established by the retirement system and by

subsections (3) to (11) of this section. The board of trustees of the retirement

system shall establish the requirements, procedures, and forms necessary for

the administration of qualified domestic relations orde rs by promulgation of

administrative regulations in accordance with KRS Chapter 13A; and

(c) The order is on the form established by the retirement system pursuant to the

retirement system's authority provided under paragraph (3)(b) of this

subsection.

(4) A qualified domestic relations order shall not:

(a) Require the retirement system to take any action not authorized under state or

federal law;

(b) Require the retirement system to provid e any benefit, allowance, or other

payment not authorized under state or federal law;

(c) Grant or be construed to grant the alternate payee any separate right, title, or

interest in or to any retirement benefit other than to receive payments from the

participant's account in accordance with the administrative regulations

promulgated by the retirement system and as provided by subsections (3) to

(11) of this section; or

(d) Grant any separate interest to any person other than the participant.

(5) Any qualif ied domestic relations order submitted to the retirement system shall

specify the dollar amount or percentage amount of the participant's benefit to be

paid to the alternate payee. In calculating the amount to be paid to the alternate

payee, the court or a dministrative agency that is responsible for issuing the order

shall follow the requirements set forth in the administrative regulations promulgated

by the board of trustees. Notwithstanding any other statute to the contrary, the

board shall not be require d to honor a qualified domestic relations order that does

not follow the requirements set forth in the administrative regulations promulgated

by the board of trustees.

(6) If the qualified domestic relations order meets the requirements established by the

system and by subsections (3) to (11) of this section, payments to the alternate

payee shall begin under the following conditions:

(a) If the participant is retired and is receiving a monthly retirement allowance,

the month following the date the retiremen t system receives a qualified

domestic relations order that complies with the administrative regulations

promulgated by the retirement system and subsections (3) to (11) of this

section; or

(b) If the participant is not retired, the month of the participan t's effective

retirement date in which the first retirement allowance is payable to the

participant or the month in which the participant receives a refund of his or

her accumulated account balance as provided by KRS 61.625.

(7) An alternate payee's benefi ts and rights under a qualified domestic relations order

shall terminate upon the earlier of:

(a) The death of the participant;

(b) The death of the alternate payee; or

(c) The termination of the participant's benefits under any of the provisions of

KRS 16.505 to 16.652, 61.510 to 61.705, and 78.510 to 78.852.

(8) An alternate payee shall not receive a monthly payment under a qualified domestic

relations order if the participant is not receiving a monthly retirement allowance.

(9) The cost of living adjustment provided to the participant pursuant to KRS 61.691 or

78.5518 shall be divided between the participant and alternate payee in a qualified

domestic relations order as follows:

(a) If the order specifies the alternate payee is to receive a percentage of the

participant's benefit, then the cost of living adjustment shall be divided

between the participant and the alternate payee based upon the percentage of

the total benefit each is receiving upon the participant's retirement or upon the

date the order is approved by the retirement system, whichever is later; or

(b) If the order specifies that the alternate payee is to receive a set dollar amount

of the participant's benefit, then the order shall specify that:

1. The cost of living adjustment shall be divid ed between the participant

and the alternate payee based upon the percentage of the total benefit

each is receiving upon the participant's retirement or upon the date the

order is approved by the retirement system, whichever is later; or

2. The alternate payee shall receive no cost of living adjustment.

If the order does not specify the division of the cost of living adjustment as

required by this paragraph, then no cost of living adjustment shall be payable

to the alternate payee. If no cost of living adj ustment is provided to the

alternate payee, then the participant shall receive the full cost of living

adjustment he or she would have received if the order had not been applied to

the participant's account.

(10) Except in cases involving child support pay ments, the retirement system may

charge reasonable and necessary fees and expenses to the recipient and the alternate

payee of a qualified domestic relations order for the administration of the qualified

domestic relations order by the retirement system. A ll fees and expenses shall be

established by administrative regulations promulgated by the board of trustees of

the retirement system. The qualified domestic relations order shall specify whether

the fees and expenses provided by this subsection shall be paid:

(a) Solely by the participant;

(b) Solely by the alternate payee; or

(c) Equally shared by the participant and alternate payee.

(11) The retirement system shall honor a qualified domestic relations order issued prior

to July 15, 2010, if:

(a) The order was on file and approved by the retirement system prior to July 15,

2010. All benefits, including cost of living adjustments payable to the

alternate payee, for orders that meet the requirements of this paragraph shall

not be eliminated or reduced as a r esult of the provisions of subsections (3) to

(10) of this section and KRS 61.510(27) and 78.510(26); or

(b) The order or an amended version of the order meets the requirements

established by this section and the administrative regulations promulgated by

the retirement system. The order shall not apply to benefit payments issued by

the retirement system prior to the date the order was approved by the

retirement system.