Pension reforms focused on a new system for future hires and some changes for current workers filed as Senate Bill 1

Calculator and euros with the sign Pension

After months of discussions on what changes will come to the state’s woefully underfunded pension systems, a pension reform plan was filed as Senate Bill 1 on Tuesday. The legislation seeks to fully fund the systems while moving new hires to a different style plan and other reforms they hope will save money over the next 20 years.


Senate Bill 1 sponsor Joe Bowen speaking on the Senate floor introducing the legislation

“Make no mistake, the pension crisis is real. And this plan brings us back from the brink of insolvency,” bill sponsor Sen. Joe Bowen said in a speech on the floor Tuesday. “Failing to act is not an option.”

Senate Bill 1, sponsored by Bowen, chair of the Public Pension Oversight Board, with Senate President Robert Stivers as the primary co-sponsor, would move all new hires into a hybrid cash-balance plan, rather than a defined-contribution (401k) plan which was previously proposed. A hybrid plan is already being used by the Kentucky Retirement System (KRS) after 2013 reforms moved new hires into this plan to help shore up the current system for current and retired state employees while giving new employees the security of a strong retirement account that cannot incur losses. The bill creates a new Tier IV for KRS as well.

Some increased age changes are included in the plan as part of the current pension crisis is a result of workers living 16 years longer on average than when the systems were created. The plan states if an employee has less than 20 years of service, the formula to achieve the “High 3” pension system changes. An employee must be either 60 years old and put in 35 years of service to have their benefit calculated with that 3.0 factor. Employees with more than 20 years of service at the time of reforms would see no changes.

Cost of living adjustment (COLAs) changes would also come to the teachers’ plan with a reduction from 1.5% to 0.75% per year for 12 years or until the Kentucky Teachers’ Retirement System (KTRS) is 90% funded. Employees in KRS have already had COLAs completely eliminated.

Upon taking effect, sick days accumulated by an employee would no longer apply to pension benefits as years of service credit. However, any time already accumulated up to that point would apply.

The plan adopts a level dollar funding formula to ensure the correct amount of funds are put toward the systems up front rather than backloading payments as has been done previously.

Legislative pensions will be transitioned to the same cash-balance system as employees, and the plan revokes spiked pensions utilized by many former legislators.

Unlike the previous pension reform plan announced in 2017, the plan announced Tuesday does not include 3% of employee salaries going to the health insurance fund for employees except for some members of Tier I of KRS.

Get a full breakdown of the bill here. 

In a statement from the Senate Republican Caucus, Senate President Stivers said the bill will eliminate the unfunded liability of the systems and ensure security for employees.

“We are committed to funding our plan, meeting our obligations to state employees, and to making systematic reforms to ensure these systems will be financially sound for current and future employees,” Stivers said in the statement.

House Speaker Pro Tem David Osborne stated the legislature heard concerns from many groups about the previous pension reform proposal and legislative leaders worked to address them with this new plan.

We listened to the concerns, and this bill represents a compromise that will bring our pension systems to the appropriate funding levels over a 30-year period,” Osborne said.

Senate Bill 1 will begin the legislative process with a hearing in a Senate committee.

Continue checking The Bottom Line for more updates on this reform bill and many others.

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Jacqueline Pitts
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