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Pension Reform

Pension Reform

On Thursday evening, March 29, the General Assembly passed an amended version of pension reform legislation and delivered it to the Governor.  I supported the legislation to prevent a collapse of the various pension systems, to require the legislature to spend more money toward pensions annually, and to make certain Kentucky is able to provide a retirement benefit for its future hires.

Senate Bill 151 does not change, reduce, or remove cost-of-living adjustments (COLAs) for retired teachers, and no public employee is forced into a 401(k)-style plan. Teachers are not required to stay in the classroom any longer before they can retire and their end-of-career benefit enhancements (High 3 / 3.0 factor) remain in place.
Senate Bill 151 does make one change to retirement benefits for current teachers.  In a change taken directly from the Superintendents’ Shared Responsibility Plan—a measure supported by the Kentucky Education Association (KEA)—teachers will no longer be able to use sick days earned after January 1, 2019 to enhance their final retirement calculation. But teachers can still use their existing sick days to enhance their final year of compensation when they retire. It is important to note, no teacher will ever lose a sick day and he or she will not be forced to retire to use their existing sick days for retirement. Teachers will still be able to cash-in sick days earned after January 1, 2019 at retirement and receive a check for them.
Teachers hired after January 1, 2019 will have their retirement funded by a “hybrid cash balance plan” administered by the Kentucky Teachers Retirement System (KTRS or TRS), the same system that current manages teachers’ retirements.  This plan was carefully designed to provide new teachers with a retirement income equivalent to the current system’s benefits, and new teachers’ retirement contributions will be invested by TRS in the exact same way current teachers’ contributions are invested.

Many have emailed, called or texted me since the debate began, understandably asking questions.  I thought the best way to respond might be to put some of the most common questions here with answers:

  • Why didn't tax reform happen first? 
    • Because of time. They aren’t done debating what any tax package would look like, and then it has to be written and checked.  Passing this first also puts pressure on legislators to vote for a tax plan that otherwise might not be there.
  • Where was the actuarial analysis of the bill that was passed?
    • There was one. It’s linked below.
  • Why was a committee on infrastructure handed a bill about pension reform?
    • The committee was the House equivalent to the Senate’s State & Local Government committee, whose jurisdiction is perfectly appropriate.  You can read the jurisdiction of the House committee here, which specifically includes pensions.
  • Why was the bill snuck through at the last minute?
    • It wasn’t "snuck" through at all, and, in fact, has had more debate and scrutiny than any other bill of the entire session.  The language of SB151 was exactly like SB1 but with several requested deletions.  The language had been public for over a month.  Some of the legislators complaining about not having seen the bill promptly gave lengthy floor speeches about provisions in the bill.
    • The timing was also a factor because we only had four days remaining and it takes five days to move a bill from start to finish.  So they put the language into a Senate Bill that was procedurally further along.  Had there been a bunch of new language or policy that hadn’t been part of the discussion over the course of session I would’ve objected.
  • Why weren't opponents allowed to have their voices heard?
    • The opponents to this bill were heard, and sincerely listened to.  In my time in the Senate no other group has had protestors for weeks straight. No other bill has been reported on and covered by the media like this one. No other bill has undergone the substantial changes this one has as a result of hearing and listening to the voices of opposition.  Your voices changed the bill!
  • If new teachers no longer contribute to the plan, how can I expect the money to be there when I retire?
    • The bill requires the state to pay far more than what current law requires. This bill stops the digging and then requires future legislatures to pony up substantially more money every time.
  • Why no inviolable contract?
    • This is only for future hires.  It’s not wise to bind future legislatures in perpetuity to a contractual obligation when we don’t know what position the state will be in down the road — it’s part of the reason we’re in this boat.
  • The original bill was expected to save money with COLA reductions that have now been removed.  How will this save money?
    • This bill will not save nearly as much money as prior versions of the bill would have saved.   But again, the problem isn’t just about saving money, it’s stopping the unfunded liability hole from getting any bigger. This bill stops that digging, and requires us to contribute much more on an ongoing basis.

One additional question that continues to be raised is regarding retiree health insurance between retirement and Medicare eligibility.  This “gap” insurance was restored for retirees by the House and Senate versions of the budget, and I fully expect it will remain funded in the conference committee’s compromise budget document.

Below are links to the following documents, which I encourage you to read through: