New pension approach should appeal to new teachers
Kentucky’s journey toward pension reform continues with legislation filed this week which incorporates ideas the Bluegrass Institute has offered in the past and continues to support, and presents a more secure and attractive retirement future for young teachers just beginning their careers.
Rep. Ed Massey, R-Hebron, filed House Bill 258 on Tuesday after more than six months of discussions with stakeholder groups from across the commonwealth.
The legislation creates a new tier in the Teachers’ Retirement System (TRS) which offers a hybrid retirement plan for new teachers hired by Kentucky schools on or after Jan. 1, 2022. It does not affect current teachers or retirees.
Massey says the model includes both defined-benefit and defined-contribution elements that will help “stop the bleeding” of the TRS, which is less than 60% funded and dealing with a $14.8 billion deficit liability. He told the state’s Public Pension Oversight Board that TRS is “unsustainable” without meaningful changes.
Massey’s bill has been assigned to the House State Government Committee. It:
The biggest temptation in this approach will be for TRS administrators and the actuaries to attempt to increase benefits in an irresponsible manner when the system experiences additional infusions of cash. As we’ve warned, actuarial gains and surpluses must be used only to enhance future benefits, not increase those which have already been earned in past years.
establishes fixed contribution rates for both employees and the state;
consists of a defined benefit coupled with a smaller defined contribution supplemental benefit;
creates a reserve fund that would be used to help the system avoid future unfunded liabilities;
triggers actions the TRS board would be statutorily mandated to take to recorrect the system’s trajectory if the plan falls below 90% funding – an important safeguard against the kind of deficit liabilities the current system faces;
includes “carrots” to help incentivize teachers to remain in the classroom longer by enhancing benefits for those who work past the age of 55 and for more than 33 years and
allows retiring teachers to collect sick-day benefits from their local school districts but prevents those payments from being included in the calculation of lifetime pension disbursements.
Times have dramatically changed since the TRS was created 83 years ago; it’s time to update Kentucky’s pension approach – at least for new teachers.
The policy contained in Massey’s bill offers a turn in that direction by creating a defined benefit plan that will, unlike the current system, be self-sustaining for years to come and appeal to a younger, dynamic and changing workforce while also protecting taxpayers from even larger unfunded liabilities.