9 things Kentucky teachers should know about the educator-proposed pension plan
A new bill to overhaul the pension system for Kentucky teachers was filed late Wednesday by two freshman Republican lawmakers.
It’s not clear yet what chance the bill has in the last month of the 2019 legislative session, but it’s a plan written by educators with input from the Kentucky Teachers’ Retirement System and the Kentucky Education Association.
Rep. Scott Lewis, R-Hartford, and Rep. Travis Brenda, R-Cartersville, proposed a bill that would create a two-tier benefit system and allow future teachers to keep a defined-benefit pension. It also would save the state more money than last year’s pension law, which was struck down by the Kentucky Supreme Court, Lewis said.
Brenda said Wednesday he thinks teachers will support House Bill 504 since it doesn’t affect existing teachers and maintains a defined-benefit plan for future teachers.
“That’s important,” Brenda said. “That’s what needs to be done to attract highly qualified personnel into those positions.”
Lewis, the primary sponsor, is the former superintendent of the Ohio County School District and Brenda, his co-sponsor, is still a teacher in Rockcastle County.
KEA President Stephanie Winkler said in a Facebook post that her group does not yet have an official position on the bill.
“At least everybody had input,” Winkler said.
Republicans have been clear that the bill serves as a starting point for discussion, reiterating that there is still no clear consensus on how to deal with the issue in the few remaining weeks of this year’s legislative session.
House Speaker David Osborne, R-Prospect, said he hadn’t seen the bill Wednesday but he said finding consensus between his caucus and Senate Republicans was a challenge.
“I still think it’s really difficult,” Osborne said. “I’m hopeful, because it is an issue that is timely and it’s one we need to deal with sooner than later, but it is still a very, very difficult thing to do.”
Here’s what teachers need to know about the plan:
▪ The changes in the bill would only apply to teachers who are hired after January 1, 2020. It makes no changes to the existing benefits of current teachers and current retirees.
▪ The bill would create a two-tier benefit system for future teachers. They would contribute to a traditional defined-benefit plan and to a new “supplemental” account that is a hybrid between a defined-benefit pension and a 401(k) investment account.
▪ New teachers will have to contribute more to their retirement than current teachers. Right now, teachers contribute 12.85 percent of their salary to retirement benefits. This bill would make future teachers contribute 13.75 percent of their salary. The employee contributions would include 8 percent to the traditional defined-benefit plan, 2 percent to the supplemental plan and 3.75 percent to fund health care benefits.
▪ The supplemental hybrid account would guarantee an annual investment return equal to the 30-year treasury bond plus 1 percent, which is currently around 4 percent. Both teachers and the state would contribute 2 percent to the account, but with a catch. If the defined-benefit pension plan for teachers dips below 90 percent funded, KTRS would have the ability to shift contributions meant for the supplemental fund to the defined-benefit plan, cut cost-of-living adjustments and raise the retirement age.
▪ New teachers would have to work until they are 55 years old to receive a pension. Current teachers are eligible for full retirement after working 26 years.
▪ New teachers who retire at age 55 would get a significantly smaller pension. They would calculate their annual pension payment by multiplying their years of service and the average of their five highest annual salaries, then multiplying that figure by 1.5 percent. Current teachers use their three highest annual salaries and multiply by at least 2.5 percent. The benefit for future teachers would increase each year they continue to work past 55 until the age of 62, when they would max out at a 2.2 percent retirement benefit factor. They would also get an additional 0.1 percent after 30 years of service, increasing to 0.3 percent after 33 years of service. The average teacher now retires at age 59.
▪ New teachers will have the option of collecting money from their supplemental account in monthly payments over time, in a lump sum or allowing it to grow until they decide to cash out. They would have the ability to pull the money from their supplemental account after five years of teaching. If they withdraw money before five years, they would forfeit the amount contributed by the state..
▪ Future teachers would not be able to use their unused sick days as a benefit enhancement to receive a larger pension. Instead, they’ll be able to add 30 percent of the money for each sick day to their current salary or add the amount to their supplemental account.
▪ Cost-of-living adjustments would only be provided on the defined-benefit pension.
This story was originally published February 21, 2019 at 12:44 PM.
