New pension reform bill requires teachers to work longer to receive maximum retirement benefits

02/21/2018 02:08 PM

FRANKFORT – Senate President Robert Stivers, R-Manchester, Acting House Speaker David Osborne, R-Prospect, and Sen. Joe Bowen, R-Owensboro, the sponsor of Senate Bill 1, the pension reform bill, say the bill filed by Bowen Tuesday will be the best way for the commonwealth to get out of its current pension crisis over time.

Senate Bill 1 is a stark contrast to Gov. Matt Bevin’s proposal which sought to put all new state employees and teachers in a 401 (k) style retirement plan.

The current proposed legislation does not place any current or future employee into a 401(k) style or defined contribution plan.

New employees will be placed in what’s called a hybrid cash-balance plan and pay 9.105 percent of their salary to the plan while the state contributes 8 percent of their salary. In addition, teachers will not have to increase an additional 3 percent of their salary into retiree insurance funds as originally proposed by Bevin.

Under the hybrid cash-balance plan, the state provides some defined benefits and traditionally guaranteed retirement benefits, but the employee will also rely on his or her own contributions to boost retirement.

In addition the bill includes the following provisions:

  • Moves KERS and KTRS to a thirty-year level dollar funding formula, but does not reset the amortization period.
  • Sets up CERS employer level dollar phase-in so that employer rates will not increase by more than 10 percent through June 30, 2022.
  • Places all new non-hazardous employees, including teachers, into a hybrid cash balance plan with 0 percent guaranteed interest.
  • New non-hazardous employees in the KERS and CERS systems will have the ability to choose to participate in a 401a defined contribution account.
  • Allows current employees and teachers to continue in their current defined benefit plan and retire when they choose with their full pension benefit.

Bowen believes that the current compromise is solid and doesn’t feel that there will be many changes to the current draft.

“We’ve made countless concessions, you know, the bill looked initially different than it does now,” Bowen said. “I don’t think there is a lot of wiggle room left, there are some technical changes that will be made, some minor things, but major issues have already been addressed and I don’t see us changing on the major structure of this document now.”

Teachers with under 20 years of service effective July 1, 2018, will have to work longer to get enhanced benefits.

Teachers with 20 years or more of service in the classroom will continue to receive a “high 3” enhancement at 27 years and a “3 percent benefit factor” at 30 years of service.

Teachers under 20 years of service will need 35 years, or 5 years longer than the current total in the classroom, and be at least age 60 years old upon retirement to receive a “3 percent benefit factor.”

The legislation will also cap sick leave conversion to service credit at the amount of sick leave accumulated on the effective date of the legislation and prohibits any new agency from electing to purchase service credit for accumulated sick leave.

“If you’re at 20 years or above, and a teacher, your benefits level aren’t going to change,” Stivers said. “The system is today what it will be for them tomorrow except for one thing, the capping of sick days as of the target date of the bill.”

It also ends “supersizing” of legislative retirement, reduces retirement benefits for legislators participating in the defined benefit retirement plan, creates an incentive for employees and teachers to work longer by requiring a one year “break-in-service” before coming back to work full time, establishes different time frames for part-time positions, substitute teaching and volunteer work effective date of the legislation.

For current retired teachers, if the Teachers’ Retirement System pension fund is less than 90 percent funded, the TRS retiree Cost of Living Adjustment (COLA) provided annually on July 1 will be 0.75 percent instead of 1.5 percent through July 1, 2029.

For future retirees, if the Teachers’ Retirement System pension fund is less than 90% funded, the TRS retiree COLA provided annually on July 1 will be 0.75 percent instead of 1.5 percent for up to 12 years following retirement.

The bill would also end the inviolable contract for newly hired teachers after July 1, 2018, which means adjustments can be made to the retirement plans in the future by the General Assembly.

Osborne, Stivers and Bowen say it’s hard to speculate as to which parts of the bill produce the most savings since everything has to be taken as a whole when looking at the entire piece of legislation.

All agree that the proposed legislation will also have a huge financial impact on future state budgets.

Bowen expects to hear SB1 in committee as early as next week.


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