Philip Brailsford, who killed Daniel Shaver at La Quinta hotel in Arizona in 2016, reportedly came to the agreement last year with the Mesa city manager's office.
This allowed him to apply for a disability pension on the basis of a medical retirement in a reversal of his firing by the department after the shooting.
He will receive a lifetime pension of around $30,000 per year.
The agreement was first reported by local news outlets in Arizona, which obtained the settlement agreement that the city reached with Mr Brailsford last August.
Mr Shaver's shooting captured media attention across the US when it happened in 2016, and again after Mr Brailsford's trial when his body camera video was released.
Police were called to the hotel in January 2016 following a complaint about a man with a rifle in one of the rooms. Mr Shaver, 26, had been showing a legal pellet gun that he used in his job in pest control, to a woman in the room with him.
Body camera footage begins with the confrontation between Mr Brailsford, other officers, and Mr Shaver and the woman. Mr Shaver complies with a series of confusing commands from the responding officers, putting his hands up and lying down on the ground.
They threaten to kill him multiple times for not complying with their orders.
"If you move, we're going to consider that a threat and we are going to deal with it and you may not survive it," one officer says.
"Please do not shoot me," Mr Shaver says at one point, his hands in the air. But Mr Brailsford opened fire after Mr Shaver appeared to reach behind himself while crawling towards the officers. He was struck five times.
Mr Brailsford, who was carrying an AR-15 rifle with the phrase "You're F****d" etched into the weapon, according to a police report, was charged with murder for the shooting and fired from his job soon after.
He testified in court that he believed Mr Shaver was reaching for a gun and would have done the same thing again.
He was acquitted in November 2017 after a six-week trial on both second-degree murder and reckless manslaughter charges.
The settlement notes that Mr Brailsford has been treated for post-traumatic stress disorder. Michael Piccarreta, his lawyer, told ABC 15 his PTSD stemmed from the shooting incident and criminal prosecution.
Mesa City manager Chris Brady told ABC 15 that Mr Brailsford's PTSD claim dates to before his trial.
"So in fairness he was given the opportunity to make that appeal to the board," he said.
The shooting prompted a multimillion-dollar lawsuit filed by Mr Shaver's family, which is still pending.