Kentucky has taken action to shore up its pension system, but it?s going to take time to reverse the adverse effects of past funding shortfalls, according to S&P Global Ratings.
Kentucky has one of the poorest funded pension systems among all U.S. states, with an aggregate funded ratio of 44% as of fiscal 2019, S&P said. The state?s general obligations are rated A by S&P with a stable outlook.
The state?s Public Pensions Authority is responsible for the Kentucky Employees Retirement System (KERS) and State Police Retirement System (SPRS) while counties and cities are responsible for the County Employees Retirement System (CERS). The Teachers Retirement System is a seperate system with its own board.
The funded ratios for the systems are 14.01% for the KERS non-hazardous and 55.18% for the KERS hazardous, 58.27% for the TRS, 28.02% for the SPRS and 47.81% for CERS non-hazardous and 44.11% for the CERS hazardous.
The GOP-run Kentucky state legislature has overridden Democratic Gov. Andy Beshear’s veto of a pension reform bill that will place new teachers in a hybrid pension plan that incorporates aspects of a defined contribution (DC) and a defined benefit (DB) plan.
Under House Bill 258, new teachers are required to contribute more to their retirement plans than current teachers do, and they will have to work for 30 years instead of 27 to earn their maximum benefits. The new rules will become effective at the beginning of 2022.
The bill had been passed by large majority of both chambers of the legislature earlier this year, with the House passing it by a vote of 68 to 28 and the Senate passing it by a count of 63 to 34. Because the state’s Republicans have a supermajority in both the House and Senate, they didn’t have much difficulty in overriding the veto, which was one of 24 vetoes passed down by Beshear, a Democrat, that were overridden in one day.
Kentucky lawmakers voted Monday to override Gov. Andy Beshear’s veto of a bill that would change future teachers’ pension benefits.
The House and Senate, both with GOP supermajorities, voted to override Beshear’s veto of House Bill 258, which would create a “hybrid” pension tier blending defined benefit and contribution components for new Kentucky teachers hired starting in 2022.
That means teachers hired starting next January would be required to pay more toward their retirement and work longer before they can earn full benefits.
Legislation to change the pension plan for future teachers in Kentucky moves to the full Senate in the final days of the 2021 session.
House Bill 258, sponsored by Rep. Ed Massey, would create a new tier in the Kentucky Teachers’ Retirement System (KTRS) for any newly hired teachers in the state that would be partially defined benefit plan like the existing pension plan and part defined contribution plan, more like a 401(k).
The bill serves as a retirement plan as well as social security replacement plan, as teachers in Kentucky do not pay into social security and do not receive the benefit in retirement. The new system would provide a supplemental plan with two percent paid in by both the employee and the state, which is portable to allow an employee to take those benefits with them should they leave the teaching profession, unlike the existing KTRS pension plan.