Story by Ashley Traylor, News Editor
Gov. Matt Bevin and GOP legislators unveiled on Wednesday, ‘Keeping the Promise,’ the plan they say will fix the $64 billion pension debt in the Commonwealth.
“For months and months, we have been hashing out in great detail how we’re going to deliver on the promise of saving the pension system,” Bevin said. “Everybody wants it to be done. Everybody knows it needs to be done. It’s easy to talk about doing it. It’s harder to actually come up with a document and a bill to allow it to happen.”
Upon releasing highlights of the plan, Bevin said the state will continue to meet the obligations to current and retired employees, including teachers. He met with several educational and retirement organizations for “their voices to be heard” about the pension system.
Bevin said in the past, legislators did not meet their obligation to contribute to the pension fund, which resulted in the multi-billion deficit the state now faces.
Bevin said it will take the next 30 years for the system to be fully funded but that this is a step in the right direction.
“We’ve got a good, good bill,” Bevin said. “And it will take time. Sure, everyone wishes we could get it taken care of in 3, 5 or 10 years.”
Bevin said to meet the needs of the public workforce, the pension cannot be a quick fix because it would violate promises.
Kentucky Teacher Retirement System (KTRS)
The proposed plan would move new Kentucky teachers to a 401(k)-type plan instead of the current pension system. As for current teachers, those with 27 years of service would also be moved to a 401(k)-type of plan. However, Bevin said he recognizes that K-12 teachers do not pay into Social Security and therefore their plans (for those with 27 years or more of service) would be more generous than other state employees to compensate.
Teachers who have less than 27 years of service but more than five years will remain in the defined benefit plan (pension system) until they meet the full unreduced retirement eligibility (27 years of service or age 60).
Current teachers with less than five years of service in the pension system will have the option to transfer to the new 401(k)-type plan.
Bevin said he is not going to raise the retirement age for teachers as suggested by the PFM consultants.
“We’re not going to do that,” Bevin said. “We’re going to meet every promise that was made to everybody. We’re going to remove all of that concern. We’re not going to change anything for any retiree. We’re not going to change anyone’s retirement dates. We’re going to allow everyone in the retirement system to continue on. We’re going to honor the people who are hazard duty folks by recognizing that is a different job than most of the rest of us have in government. We are going to protect everybody at every turn.”
One benefit that teachers were hoping would not be eliminated, was, in fact, put on the chopping block. Currently, teachers can use unused sick days throughout their career to boost their pension benefits. School districts will be able to continue to provide payment for up to 30 percent of a retiring member’s accumulated sick leave. Sick days will translate into enhanced retirement benefits for those retiring on or before July 1, 2023. After that date, teachers can no longer ‘cash in’ their unused sick days.
Another change proposed in the plan would be to suspend cost of living adjustments for current retirees will be temporarily suspended for five years. Teachers who retire in the future will not be eligible for a cost of living adjustment until they have been in retirement for five years. Bevin did say that there would not be a reduction for any previously granted cost of living adjustments.
Kentucky Employee Retirement System- Nonhazardous (KERS-NH)
Similar to teachers, there will be no reduction in cost of living adjustments for current retirees and no change to the retirement age for employees who fall under the KERS.
Most employees will remain in their defined benefit plan, unless they were hired after July 2014 because they are currently enrolled in a cash balance program, rather than a pension.
Those employees who were hired after 2014 are considered Tier 3 employees, and Bevin said these employees will immediately roll over into a 401(k)-type plan.
New employees will also fall under a 401(k)-type plan. Under KERS, Tier 1 and Tier 2 employees on a defined benefit plan will continue to accrue full unreduced retirement eligibility. When they reach 27 years of service, they will be placed under the new 401(k)-type plan.
Employees will also be required to make an additional 3 percent contribution to fund the retirement health care program.
Bevin will call a special session within the next month to vote on the plan. If passed, it would go into effect on July 1, 2018.
Bevin did not reveal his plan to fund this new system but said that is something lawmakers will consider in the regular session in January. For now, he believes this plan will ‘keep the promise’ made to every state employee.
“When you have a plan that fulfills every promise, that delivers on everything that is contractually required, that addresses every single person and takes into consideration both what is legally and morally appropriate, and that even when it’s done everybody is slightly unhappy with, you know you have the right plan, and we have the right plan,” Bevin said.