KY Senate’s new pension plan rules would require some teachers to work longer, pay more
The Kentucky Senate on Monday added new restrictions to an already controversial teacher pension bill that would reduce benefits for new hires.
House Bill 258 would require teachers hired after Jan. 1, 2022, to contribute more toward their retirement benefits, capping the state’s obligation at 10 percent of salary, and to work at least 30 years instead of the current minimum of 27 years.
Sponsors say the salary replacement for retired teachers — coming from a hybrid of defined-benefits and defined-contributions accounts — would be comparable to what retirees currently get with traditional pensions. Unlike most workers, Kentucky school teachers are not eligible for Social Security retirement benefits, so their retirement plans are especially critical.
On Monday morning, the Senate State and Local Government Committee unveiled a committee substitute for the bill that added four new restrictions for new hires covered by the measure, including:
▪ Raising the minimum retirement age from 55 to 57. Currently, Kentucky teachers on average retire at age 59, with a typical retirement income of about $38,800, according to the Teachers’ Retirement System of Kentucky;
▪ Making it more difficult to “spike,” or enhance, benefits by basing them on the average of the final five years before retirement rather than the final three years;
▪ Forbidding TRS from retroactively returning benefits to retirees, such as certain state contributions and cost-of-living adjustments, that can be withheld for a period if the foundational benefits plan for new hires falls below a 90 percent funding level.
▪ Preventing teachers who have started receiving retirement benefits from opening a second retirement account at TRS if they become re-employed in education.
The Senate committee approved the bill with little debate and sent it to the Senate floor.
The bill is creating a rift among educators. The leaders of some mainstream teacher groups say it’s the best deal possible given Republican super-majorities in the legislature that insist on making pension changes. But frustrated rank-and-file activists in the education community are pushing for strong opposition.
The Kentucky Education Association is not taking a position on the bill, said KEA President Eddie Campbell on Monday, although he added that he hadn’t had an opportunity to read the new Senate committee substitute.
“We don’t believe the systems need any structural changes,” Campbell told the committee. “They just need to be fully funded.”
Republican senators on the committee said the teacher pension system needs even more structural changes to provide relief for Kentucky taxpayers, who subsidize it. As of June 30, the $20.8 billion TRS had only 58.4 percent of the assets it’s expected to need to cover future liabilities.
The senators rejected the criticism that the state failed for years to make the required annual contribution to the teacher pension system, allowing its funding level to drop. From 2008 to 2016, TRS requested more than $1.9 billion in state appropriations that the legislature did not provide, according to TRS financial documents.
“We don’t get to live in a world where only one item makes financial demands upon the resources of the commonwealth. And let us not forget, those financial resources are taxpayer dollars,” said state Sen. Chris McDaniel, R-Taylor Mill. “There comes a point of balance that every system of government must strike.”
Senate Republican Floor Leader Damon Thayer, R-Georgetown, scolded the KEA for its “usual tired line about full funding.” The General Assembly in recent years put $2.5 billion into teacher pensions, above and beyond the required state contributions, Thayer said.
“We’re all still waiting for our thank you notes,” Thayer said.
Under the bill, new teachers would get a retirement package consisting of a foundational benefits plan, comparable to a defined-benefits pension; a supplemental benefits plan, comparable to a defined-contribution 401(k); and retiree health benefits.
The percentages of salary that teachers and the state would contribute toward the retirement package would shift from what it presently is, putting more of the burden onto teachers and capping the state’s obligation at 10 percent.
At present, teachers pay 12.855% of their salaries toward their pensions and retiree health care. The bill would raise that to 14.75% for new teachers.
If the funding level for the foundational benefits plan fell below 90 percent, the TRS Board of Trustees would be required to correct it. The corrective steps could include tapping a stabilization reserve fund created by excess contributions as well as diverting some of the state’s future contributions to the teachers’ supplemental benefits plans.
Full retirement benefits would not begin until teachers reached age 57 with at least 30 years of service, or age 60 with at least 10 years of service, or age 65 with at least five years of service. Retirement benefits would be enhanced for every month after age 60 that a teacher stayed on the job, until age 65.
For younger teachers who change careers, they would be vested in TRS after five years. If they wanted to leave for a different job after that, they could withdraw their contributions and the state’s supplementary plan contributions, plus 2.5% interest. Presently, departing teachers cannot withdraw any of their employer’s contributions.
This story was originally published March 15, 2021 at 3:54 PM.
