Kentucky Legislature Considers Changes to Teacher Retirement Plan

The Kentucky House recently passed a state bill that would place newly-hired Kentucky teachers into a new “hybrid” retirement plan design. The new hybrid plan would blend a “foundational” defined benefit pension plan with a “supplemental” defined contribution plan as a means of de-risking the Kentucky Teachers’ Retirement System, which is only 58.4 percent funded today.

The legislation, which is now before the Senate’s State and Local Government Committee, ultimately seeks to control future employee, retiree and taxpayer costs. The Teachers’ Retirement System of Kentucky already has nearly $15 billion in unfunded liabilities.

An actuarial analysis of the bill, House Bill 258, projects that it would save Kentucky $3.57 billion over 30 years. While the legislation is not a panacea, if enacted, it would be a positive step in the right direction for Kentucky’s overall public pension challenges, which rank among the most difficult in the nation.

Notably, the current legislation is the result of more collaboration with stakeholders, specifically between the legislature and teacher labor associations, throughout the drafting process than previous efforts. The bill’s lead sponsor, State Rep. C. Ed Massey, involved education groups in the legislative process, and, in the end, the bill received endorsements from the Kentucky School Boards Association, the Kentucky Association of School Administrators, and the Kentucky Council on Postsecondary Education. Meanwhile, the Kentucky Education Association and the Jefferson County Teachers Association have, as of this writing, remained neutral on the subject.

Reason Foundation’s Pension Integrity Project’s analysis of Kentucky’s 2018 pension reform effort and Senate Bill 151, which was later struck down by the State Supreme Court as unconstitutional on procedural grounds, noted the importance of taking a truly collaborative approach to pension reform efforts.

The previous lack of collaboration ultimately helped drive the legal challenges that were the 2018 reform’s undoing. By engaging educators throughout the process this time, rather than alienating them or shutting them out, HB 258 thus far appears to stand a better chance of producing needed pension reforms for Kentucky taxpayers, educators, and retirees.