Gov. Matt Bevin and Republican leaders of the state legislature have released a proposal that would make major changes to the retirement plans for teachers and other state workers.
The proposal would phase out the state’s use of a defined-benefit pension system, which guarantees payments to state employees throughout their retirements.
Instead, nearly all future and some current employees would be moved into defined contribution plans like 401(k)s, which will require the state to put less money into employee retirements.
Bevin said the changes are necessary to keep the pension system alive.
“If you are a retiree, if you are working toward retirement and hoping to retire at some point, you should be rejoicing at this bill,” Bevin said.
The much-anticipated proposal comes after months of closed-door negotiations, though Bevin said he’s still not ready to call a special legislative session for lawmakers to vote on the measure.
Combined, Kentucky’s pension systems are among the worst-funded in the nation. Lawmakers diverted contributions to the systems for decades, leading to an unfunded liability ranging between $30 billion and $70 billion.
The proposal would require the legislature to make larger payments to the state’s retirement funds and shift future employees out of the pension systems, meaning their contributions won’t help pay down the state’s massive liability.
As a result, Bevin said next year’s budget-writing process “will be a brutally difficult budget session.”
Bevin’s proposed changes differ for each of the state’s pension funds, though all employees will now be required to contribute 3 percent of their salaries to a retiree health program and won’t be allowed to use accrued sick leave to boost their benefits.
Employees who have “hazardous” duties — like police and firefighters — have the fewest changes. They would remain in the state’s conventional pension system.
State workers hired before 2014 will be able to continue using their defined benefit programs, though they would have to transfer to a 401(k) once they have worked for 27 years.
State workers hired in 2014 or later, and teachers hired after July 1, 2018, would be moved into 401(k) plans.
Because teachers don’t receive Social Security benefits, the state and local school districts would make increased contributions to their retirement funds. Teachers would also contribute 3 percent of their salaries to retiree health benefits.
Though Bevin said “we’re not changing anything for someone who’s already retired,” his proposal tinkers with cost of living adjustments given to retired teachers — ending the 1.5 percent supplements for the next five years and the first five years of future teacher retirements.
Teachers also wouldn’t be able to use sick leave in their retirement calculations after July 2018.
Teachers and state workers who have worked more than 27 years would be required to transition to a 401(k) plan within three years.
Jim Carroll, spokesman of Kentucky Government Retirees, said that Bevin’s proposal would violate the state’s promise to honor retirement benefits for current and retired workers.
“Proposals to arbitrarily limit the accrual of benefits betray the pension promise and violate the contract rights of Kentucky Retirement Systems members,” Carroll said.
“We will be conveying our opposition in our outreach to legislators throughout the review process. We hope that, in anticipation of the 2018 session, leadership will soon begin seriously considering revenue measures that will help address pension funding while upholding the legally secured rights of KRS members.”
Bevin has called for the legislature to reform the state’s tax code in order to bring in more revenue, but Republican leaders in the legislature have been reluctant out of fear that it would require raising taxes.
This story has been updated.