The Kentucky House of Representatives voted to approve a bill that would move participants in the Kentucky Teachers' Retirement System, Frankfort, to a hybrid plan.
The House voted 68-28 in favor of the bill, which creates a tier for teachers hired after Jan. 1, 2022.
Rep. C. Ed Massey sponsored the bill because the $21.6 billion pension fund "has a huge unfunded legacy," he said in a telephone interview.
The changes for teachers hired after Jan. 1 creates "a true hybrid plan," Mr. Massey said. "There's a defined benefit component and a defined contribution component. The idea is the defined benefit piece is a Social Security replacement, and the defined contribution piece becomes portable so it gives new hires the opportunity to move back and forth," Mr. Massey said.
Beau Barnes, deputy executive director and general counsel of the pension fund, said under the new tier, a total of 17% in employer and employee contributions would go to the DB 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 funding. The new tier is funded at 110%, and any savings in costs will go to a stabilization reserve account, from which the board can draw funds if the funding ratio for the tier falls to 95% or 98%, Mr. Barnes said.
The main intent of the changes is to provide a fixed cost for contributions, he said.
The bill also changes the ages and length of service teachers are permitted to retire. Currently, teachers at any age can retire with 27 years of service. Under the new bill, teachers could retire after age 55 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.
According to Cavanaugh MacDonald's most recent actuarial valuation of the teachers' retirement system, the funding ratio as of June 30 was 58.4%. An actuarial analysis by the firm included with the legislation package on the Kentucky Legislature's website says the projected employer cost would drop to $50 billion for the next 30 years from $53.5 billion.
Mr. Massey said the bill has moved onto the Senate, and he hopes a vote can be completed before March 16. He noted that Gov. Andy Beshear has said he intends to veto the bill, and the need for an override is expected.