Plan ends pensions for most future public workers. Costly changes for current workers.

Lexington Herald-Leader (KY)

Oct. 18--FRANKFORT -- They don't have a bill to share with the public yet, and there still isn't a date for a special legislative session, but Republican Gov. Matt Bevin and GOP legislative leaders on Wednesday unveiled a summary of their proposed 30-year solution for Kentucky's public pension crisis.

In a nutshell, Bevin said, today's public retirees and employees would get to keep most of the benefits they expect, including defined-benefits pensions with payments guaranteed to last the rest of their lives. And there would not be a "clawback" of cost-of-living adjustments from state retirees that pension consultants recommended in August.

"Keeping the promise is really the crux of what we are doing here today," Bevin said.

However, teachers and state and local government employees would have to kick in 3 percent of their salaries to shore up their retiree health care funds -- a de facto pay cut. And retired teachers would forfeit their cost-of-living adjustments for the next five years. Additionally, future retired teachers wouldn't get a cost-of-living adjustment until five years after retirement.

"We're concerned that that particular portion is not legal," said Tim Abrams, executive director-elect of the Kentucky Retired Teachers Association. "And we hope we will get the opportunity to talk to the governor and legislative leaders about it."

The biggest change for the future: Teachers and state and local government employees hired after July 1, 2018, when the proposal would take effect, no longer would get pensions. Instead, they would get defined-contribution plans, like a private sector 401(k) account, that they and their employers would contribute into, Bevin said.

Although Kentucky's future teachers wouldn't get pensions, they also wouldn't be enrolled in Social Security, just as they aren't now, Bevin said.

"Turns out they (teachers) don't really want to participate in Social Security," Bevin said. "So they're not going to."

As future teachers' sole retirement income, the defined-contribution plan would let them invest up to 12 percent of their salary with a 6 percent employer's match. Four percent of that match would come from the state government; two percent would come from school districts -- a new expense for the districts, which do not currently contribute toward retirement benefits.

Future state and local government employees, who will be enrolled in Social Security, would be able to invest up to 9 percent of their salary with a 5 percent employer's match.

For all public employees, a menu of investment options -- most likely, mutual funds -- would be made available for them, selected by the Kentucky Retirement Systems and the Teachers' Retirement System of Kentucky.

Critics have warned Kentucky against moving its pensioned public employees to 401(k)-style accounts, arguing that senior citizens easily can outlive their savings, especially if their incomes were low or their investments didn't perform well.

But Bevin said Wednesday that Kentucky will be offering "a very, very good plan" to employees.

"When you see the generosity of the employer match that the commonwealth of Kentucky is going to put into people's retirement plans, you will be -- I would encourage you to compare it to the one you have wherever you work. You will find that it will be a very, very good plan," Bevin said.

"As a guy who has worked in that world, I would take in a heartbeat the DC plan that we're going to be rolling out over the alternative. I really would," Bevin said. "It's a better plan, it's a richer plan in terms of what it will do for an individual at the end of a career."

Most currently-employed teachers and government employees will retain their defined-benefits pensions, with the exception of state employees hired after January 2014, who already are enrolled in "cash-balance" plans rather than pensions. Those so-called "Tier 3" workers will be rolled into defined-contribution plans next year, Bevin said.

Official retirement ages for currently employed teachers and government employees won't change, Bevin said.

Bevin said he expects to call a special legislative session to approve a pension reform bill soon, but he does not yet have a date to announce. Lawmakers on hand Wednesday said the session should not last more than five days when it does happen.

The next regular session of the General Assembly begins in January.

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