Next steps: More must be done to stabilize teachers' retirement system

This year’s Kentucky General Assembly took a tremendous step in adopting BIPPS’ policy solutions to address the growing liabilities in our state’s public pension plan for teachers. The passage of HB 258, sponsored by Rep. Ed Massey, R-Hebron, creates a new plan for teachers entering the Teachers’ Retirement System (TRS), giving them generous pension benefits while shifting the brunt of the risk from taxpayers to beneficiaries.

Despite the passage of this plan into law and the commitment over the last few years to fully fund the Annual Required Contribution (ARC), more can and must be done to address TRS’ current $15 billion unfunded liabilities.

BIPPS has put forth the following solutions, developed by Dr. William Smith, who leads the Bluegrass Institute Pension Reform Team, that would move TRS towards solvency without violating the “inviolable contract.”

Sick Days

• The use of sick days to enhance final compensation is not protected by the inviolable contract.

• Stop the accrual of sick dates to enhance final compensation on the effective date of legislation.

• Current members may contribute the payment for future sick days to a supplemental account.

“High-3” Final Compensation Formula

• The “high-3” final compensation formula is not protected by the inviolable contract.

• Eliminate high-3 for current members who are five years or more away from eligibility.

• Applies to members with fewer than 22 years of service or less than 50 years of age.

3% Multiplier

• The 3% final compensation formula is not protected by the inviolable contract.

• Eliminate for current members who are five years or more away from eligibility.

• Applies to members with fewer than 25 years of service on the effective date.

Pre-65 Retiree Health Insurance

• Pre-65 retiree health insurance is not protected by the inviolable contract.

• Access to a group retiree health plan is protected by the inviolable contract.

• Phase out state subsidies over the 23.6 years remaining in the TRS amortization period.

• Phase in funding of pre-65 retiree health by existing TRS Health Insurance Trust.

Retirees Returning to Work

• The ability to earn a second pension after retiring is not protected by the inviolable contract.

• Retirees who return to work full-time will be allowed to participate in the supplemental plan.

Anti-Spiking Provision

• Ensure anti-spiking provisions conform to the elimination of high-3 final compensation formula.

We urge legislators to employ the momentum created by the passage of HB 258, and to have the courage to take the next steps in addressing our public pension crisis. We should not continue down the road of balancing the pensions of retirees on the backs of future generations of Kentuckians through debt, nor should we crowd out funding for all vital government services to address pension unfunded liabilities.