The Kentucky House of Representatives on Feb. 4 will vote on a bill that, if passed, would create a new benefit tier within the Teachers’ Retirement System. New educators hired after Jan. 1, 2022 would be put into the new tier, which would mandate larger employee contributions and require educators work for at least 30 years instead of 27 in order to claim the maximum retirement benefit. There would be no changes to anyone already enrolled in KY TRS.
New teachers would be enrolled in a hybrid retirement plan that would combine a defined benefit pension plan with a supplementary defined contribution plan, according to the bill. Current educators are enrolled in a traditional pension plan.
Kentucky’s Public pension plans are precariously underfunded and pose significant fiscal challenges to the state. According to Equable’s most recent estimates, state’s total pension unfunded liabilities are equivalent to 18.1% of the state’s GDP as of 2019 and the required state contributions to its pension plans account for 12.38% of the state’s yearly budget.
The bill seeks to mitigate the impact of chronic underfunding, largely driven by lawmakers’ apathy to growing unfunded liabilities. From 2006 – 2018, the state failed to make its full required contributions to KY TRS, shorting the plan $2.3 billion in assets. Presently, the Teachers’ Retirement System is currently 58% funded and faces $14.8 billion in unfunded liabilities, per the system’s 2020 financial report.
The proposal has been panned by Kentucky educators who believe teachers should not be split into a two-tier system. Gay Adelmann, acting president of the advocacy group Save Our Schools Kentucky, told the Lexington Herald-Leader, “It’s a good way to divide and conquer.” She also feared existing benefits could be changed in future sessions, and that the two-tier system would lead to division among teachers.
“Because five years from now, when one-third of our teachers are new and they’re in this less generous retirement plan and then the lawmakers go after the existing pensions, they’re not going to feel the kind of loyalty that would make them stand beside us and fight,” she said. “And why should they, if we’re selling them out right now?”
Adelmann’s fears, though, are unfounded. The Kentucky State Constitution states public pension benefits cannot be reduced or impaired by any means. The bill’s language affirms future benefits would be held to that statute.
The bill, sponsored by Republican State Rep. C. Ed Massey, would have to pass the Republican-controlled state Senate before it goes to the desk of Kentucky Gov. Andy Beshear, a Democrat. Republicans in both houses hold veto-proof majorities.