Kentucky Chamber President and CEO Dave Adkisson explained legislators can likely expect a list of options from the Kentucky Teachers’ Retirement System (KTRS) working group rather than a “grand proposal” to solve the system’s funding woes. But Adkisson stressed that while there are political pressures around the issue, something must be done in 2016 to avoid hurting the state in other areas.
At an Interim State Government Committee meeting Wednesday, Adkisson testified in front of lawmakers from both the state House and Senate to give a summary of the work being done by the KTRS work group ahead of the group’s last meeting on Dec. 1 when they are expected to give recommendations.
Adkisson told legislators that many options have been laid out for the group by their consultant including:
- A “shared responsibly” model, which has been used to shore up other funding issues within the pension systems and other areas like the Unemployment Insurance Trust Fund. (Hear Adkisson discuss that proposal starting at 5:00 in the video.)
- The costs associated with converting from the current defined-benefit structure to a defined contribution (401k) style plan. Adkisson noted that while many have brought up this possibility and it is likely that many in the business community would prefer this type of model, which the majority of employers use, there would still be costs associated with this kind of switch as the underfunding of the current system will still exist. (7:40 in the video.)
- A message from the consultant in the last meeting that KTRS needs a 14 percent increase of overall payroll in funding to get back on solid ground within 30 years. With that increase, the consultant offered a scenario where the state would start paying an additional one percent above normal cost starting next year and add another one percent increase on top each following year. (Explanation at 9:20.)
- The possibility of making structural changes to the system along with any other funding increases to ensure the plan is solvent going forward has also been discussed. There are three items that are not part of the system’s inviable contract including:
- The calculation of sick leave as compensation in the last years of service
- Minimum retirement age
- The formula used to determine a retiree’s salary
- Many have discussed the idea of bonding a number in the billions to provide the system with an influx of cash.
Adkisson also expressed a concern about the demographic changes that KTRS and the legislature are up against as the average life expectancy has gone up significantly since the retirement system was established.
“If this were Sesame Street, today’s number is 16. That’s how many more years longer an average adult lives today than they did on July 1, 1940 when KTRS was established,” Adkisson said (at 13:00). “And in the meantime, the required years of service was actually decreased from 30 to 27. So we’ve got a system trying to fund another 19 years of retirement from when it was created. So that obviously puts a strain on the system.”
Listen to Adkisson’s full comments in the video below:
Bottom Line will have coverage of the final KTRS work group meeting and its legislative recommendations December 1. Read other pension news here.