A bill reforming the teacher pension system for new hires cleared the Kentucky State House Thursday afternoon, less than two hours after coming out of a legislative committee.
The bill would put teachers hired after Jan. 2022 into a different “tier” than current employees. The new tier would have a smaller defined benefit than the existing plan, but would also have an additional defined contribution portion.
The bill’s sponsor, Rep. Ed Massey (R-Boone), said the average payment would be 74% of the teacher’s salary, similar to salary replacement for the current plan and would save the state $3.57 billion over the next 30 years.
“It basically stops the bleeding, or reduces the hemorrhaging of money, that has continued to grow and will exponentially grow over the coming years,” Massey said on the House floor Thursday.
Republican state lawmakers have been anxious to reform the teacher pension system, which has a massive unfunded liability. That’s due to many years during and after the Great Recession in which the legislature did not adequately fund the pension program. Massey said putting new hires into a different, less expensive program would reduce the state’s overall pension burden.
However, many House Democrats who voted against the bill said the new plan would make it even harder to solve the state’s teacher shortage.
“This is a benefit cut any way you slice it and dice it,” Rep. Patti Minter said (D-Jefferson). “This is going to make it harder to recruit teachers.”
Eddie Campbell, president of the Kentucky Education Association, the state’s teachers union, expressed the same concerns in a House committee, less than two hours before the bill was brought to the floor. However, both Campbell and Jefferson County Teachers Association president Brent McKim declined to share their positions on the bill.
McKim has been involved in crafting the plan and said it meets the priorities he had for it.
“The preferred course of action among the folks that I represent would be continue with the current plan and continue to fully fund it. We believe that that is, in the long term, doable,” McKim said. “But we understand there are differences of opinion….so we asked to be at the table.”
Other education groups voiced support for the proposal in committee, including the Kentucky Association of School Superintendents, the Kentucky Association of School Administrators and the Kentucky Council on Postsecondary Education.
The bill does not have support from Ky 120 United, the school employee group that formed in 2018 and organized mass sickouts in response to then-Gov. Matt Bevin’s attempts at teacher pension reform.
The bill passed the house 68-28, and goes onto the Senate for more consideration.
Here are the top line changes for teachers hired after Jan. 1, 2022 under the proposal:
Teachers can currently retire at any age with 27 years of service. New hires would need 30 years to retire at 55, 60 with 10 years, or 65 with five years.
Contributions and Benefits
Current members contribute 9.105% of their salary into the pension plan, and have a defined benefit, meaning the amount they receive when they retire is fixed and cannot change based on how well the pension fund does in the stock market. New hires would pay 9% into a defined benefit plan, plus 2% into a defined contribution plan. The employer would match the 2%. A defined contribution plan is generally considered less secure than a defined benefit plan because it is subject to changes based on the performance of investments. This defined contribution plan would be tied to the 30-year treasury rate, and could only go up in value based on interest. Advocates of the proposal say the defined contribution portion makes the plan more “portable” because employees could take the employer contribution and the interest gained with them if they leave the job after five years or more.
This chart provided by the pension bill working group shows how total benefits would differ under the new plan.
Lawmakers say they have built in a “stabilization fund” into the proposed pension program. They say they designed the pension fund with conservative estimates so that it will likely be over funded, and therefore never suffer the same fate of the current teacher pension program. That over funding will be swept off into a stabilization fund which can then be used to shore up the program if it ever falls below 90% funded. Lawmakers say the excess could also be used to enhance benefits if the stabilization fund becomes very large.
Editor’s note: A previous version of this story contained an error. The defined contribution portion of the proposed pension plan would be tied to the 5-year rolling average of the 30-year treasury rate.