Kentucky Pension Reform Plan Includes Drastic Cuts for Teachers

By Ray Harmon • October 30, 2017 • 0 Comments
On Oct. 18 Kentucky Gov. Matt Bevin (R), House Speaker Jeffrey Hoover (R), and Senate President Robert Stivers (R) held a joint press conference to announce a proposal that would close the state’s pension plan to teachers and move new hires to a defined contribution-only option going forward, among other cuts.

Artfully titled, “Keeping the Promise,” the proposal ostensibly seeks to cure the state’s $64 billion-plus unfunded public pension liability by making a number of sweeping changes to all of the state’s various retirement plans for public employees.

Impact on Teachers and 403(b)

For teachers in particular, the plan would leave the defined benefit plan open to current employees until they’ve reached full eligibility (either 27 years of service or age 60) at which time they would move to the new defined contribution plan if they continued in service.

For new hires and those transferring to the new DC-only plan, the DB plan would not be available. Employee contributions to the DC plan would be set at 9% of salary, with the option to contribute an additional 3% of salary. Employer contributions would be 6% of salary divided between the state’s (4%) and the local school’s (2%) contributions. With up to 12% of salary coming out of teachers’ paychecks, there would be little capacity for the average Kentucky public school teacher to invest additional funds in a supplemental 403(b) plan.

Critics, including numerous education organizations, say the bill breaks some promises and would make it much harder to attract and retain good teachers and public employees.

Outlook and Timeline

There is no bill filed or fiscal analysis published yet, but a bill may be released as soon as this week. Nonetheless, given that the plan was announced in a joint conference between the Republican executive and legislative leadership in the state, it seems quite likely that there is enough political will to get it enacted quickly.

Bevin has indicated a desire to call a special legislative session as soon as possible, though House Speaker Hoover would prefer 30 days to review a bill before a special session starts, suggesting movement would start sometime around the Thanksgiving holiday.

If your business will be impacted, please contact Ray Harmon, Esq. at rharmon@usaretirement.org. NTSA is particularly interested in how this process will impact our members and exploring options.

Ray Harmon, Esq., is government affairs counsel for NTSA.

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