The Kentucky General Assembly voted Tuesday to approve a bill that would move participants in the Kentucky Teachers' Retirement System, Frankfort, to a hybrid plan.
The state Senate approved the bill 25-11 with amendments to an earlier bill the state House of Representatives had approved in February, and the House quickly followed with a vote of 63-34 in favor of the revised version.
State Rep. C. Ed Massey said in February following the House's passage of the original bill that he sponsored the bill because of the $23.9 billion pension fund's "huge unfunded legacy."
According to Cavanaugh Macdonald's most recent actuarial valuation of the retirement system, the funding ratio as of June 30 was 58.4%.
In a telephone interview Wednesday, Mr. Massey said: "I consider it a very big win for Kentucky, a protection for new hire teachers because there are protections that keep the bill funded, and it's a step forward in trying to resolve the pension crisis in Kentucky."
The bill creates a new tier for teachers hired after Jan. 1, 2022.
Beau Barnes, deputy executive director and general counsel of the pension fund, said in an email that under the new tier, a total of 17% in employer and employee contributions would go to the defined benefit side of the hybrid plan, and 4% (split evenly between employers and employees) would be contributed to the supplemental plan, which Mr. Barnes said would be a new 403(b) plan.
Mr. Barnes said the current contribution formula involves variable costs for the commonwealth of Kentucky, which must make variable contributions based on pension plan funding. The new tier is funded above 100%, and any savings in costs will go to a stabilization reserve account, from which the board can draw from if the funding ratio for the tier falls below 100%, Mr. Barnes said.
The main intent of the changes is to provide a fixed cost for contributions and place the responsibility for any developing unfunded liabilities on reserves created by the overfunding, he said.
The bill also changes the ages and length of service after which teachers are permitted to retire. Currently, teachers at any age can retire with 27 years of service.
Under the passed bill, teachers could retire with an unreduced retirement benefit after age 57 with at least 30 years of service, at age 60 with at least 10 years of service and at age 65 with at least five years of service.
Mr. Massey said Wednesday the only significant change in the bill from the version originally approved by the House in February was the switch to age 57 from age 55 as the earliest potential retirement age.
He also added that while Gov. Andy Beshear had said early in the process of the bill's drafting he would veto it if passed, that statement was provided before the Kentucky Education Association took an official position on the bill, which it has since said is neutral.
Either way, the assembly passed the bill well above the threshold required for an override, Mr. Massey said.
Crystal Staley, Mr. Beshear's spokeswoman, and could not be immediately reached for comment.