New pension bills take different approaches to fixing state’s pension crisis
Two new pension bills filed on Wednesday, the final day to file House bills, take different approaches to dealing with the state’s pension crisis.
One bill getting a lot of attention would change the Kentucky Teachers’ Retirement System for new hires by placing them in a different type of pension plan and shift risk off the state and onto the pension system and employees.
House Bill 504, sponsored by new GOP Rep. Scott Lewis, would apply to new teachers beginning January 1, 2020 and would put them in a new type of pension plan and encourages longer teacher careers. It would also place more risk on the system than the state as the current pension crisis revolves around the money needed from the state to put toward the pension systems crowding out funding for other essential areas.
The plan is made up of a “foundational” benefit with an employee-employer match of 8% each and a “supplemental” benefit in which teachers would contribute to. The bill also requires that teachers work until at least 55, whereas currently they can retire if they have enough years of service (27 years). It encourages teachers to work longer by placing higher benefit factors for longer careers, the highest of which being retirement at age 62 with 33 years of service (which would provide a 2.2% age factor and 0.3% career factor bump).
Risk to the state is limited under the bill as it states if the plan goes below 90% funded, the pension system board will be required to engage multiple “risk factors” stated within the bill including utilizing money from the stabilization reserve account established in the bill, adjusting interest rates or benefit factors of those in the system, and/or cost of living adjustments in order to shore up the system.
Rep. Lewis, a former superintendent, told reporters preliminary estimates say the bill will save $335 million over 20 years. The current combined unfunded liabilities of Kentucky’s public retirement plans of nearly $43 billion.
Meanwhile, Rep. Jerry Miller of Louisville filed House Bill 505 on Wednesday that would require the Kentucky Teachers’ Retirement System to adopt more realistic payroll growth assumptions and have the state implement level-dollar funding by the year 2025.
Level-dollar funding was a key aspect of pension reforms passed by the legislature, and then overturned by the Kentucky Supreme Court, in 2018. A level-dollar funding formula would ensure the correct amount of funds are put toward the systems up front rather than backloading payments as has been done previously.
House Bill 505 would also require local school districts to pay two percent of pay to be put toward the costs of the retirement benefits of new teachers and would ensure employer contribution rates for the County Employee Retirement System (CERS) not increase by more than 12% per year from 2018-2028 as pension costs continue to put an intense strain on local budgets and threaten layoffs and budget cuts.
It is unclear what will happen with either of these bills as the legislature has officially reached the mid-point of the 30-day session and neither bill has been heard in committee. It has been stated publicly that the Public Pension Working Group will not meet any more during the 2018 session and many have suggested there may be a special session in 2019 to deal with the pension issue outside the regular 2019 session of the General Assembly.