Will a long-awaited pension bill move new teachers into a ‘hybrid’ retirement plan?

Feb. 14--FRANKFORT -- A bill to alter Kentucky's public pension systems will likely be revealed this week, and might put future teachers into a hybrid retirement plan similar to one used by most state and local government workers hired since 2014, a key lawmaker said Tuesday.

Senate President Robert Stivers, R-Manchester, said Tuesday during a question-and-answer session with reporters that new teachers could be put in a hybrid "cash-balance" plan, which is less generous than a traditional defined-benefits pension but offers more retirement security than a 401(k)-style defined-contribution account.

When asked if the proposed bill would put new teachers into a cash-balance plan, Stivers said "it could" and did not elaborate.

When House Speaker Pro Tempore David Osborne, R-Prospect, was asked a similar question, he responded: "I've heard that speculation, too." When pressed to say whether that speculation was correct, he said "I'll wait until it's filed."

Gov. Matt Bevin, a Republican, called for a switch to 401(k)-style accounts for new teachers and state workers in a proposal he unveiled with GOP legislative leaders last October. But rank-and-file lawmakers rejected Bevin's plan after facing protests from teachers in their home districts.

As the 2018 Kentucky General Assembly reaches its halfway mark Wednesday, legislative leaders seem more confident that a public pension overhaul bill will be introduced.

Stivers said the pension bill could be filed as early as Wednesday but that it more likely will come on Thursday.

No decision has been made yet about whether the bill will be filed in the House or Senate, Stivers said. He also said Republican legislative leaders want to "sit down with our colleagues in the minority party" for their input.

Stivers called the still-secret bill "a good piece of legislation" and said it makes sure that current public employees who are in a defined-benefit system stay in that system and are not switched to a defined-contribution plan.

In a defined-benefit system, an employer provides a specific monthly pension payment for life based on a variety of factors, such as an employee's earning history, tenure and age. In a defined-contribution system, employees must save enough money from their pay, sometimes matched by contributions from their employers, to carry them through their old age. Unlike traditional pensions, the money can run out in a defined-contribution pension plan.

A hybrid cash-balance plan has some characteristics of both a defined-benefit plan and a defined-contribution plan. It resembles a defined-contribution plan because it determines the value of benefits for each participant based on the value of an individual's account. However, the assets of the plan remain in a single investment pool, like a traditional defined-benefit plan, and the employer guarantees a minimum return on investments.

Like a defined-benefit plan, it uses a specific formula to determine benefits, which can be taken in a life-time annuity.

According to the Kentucky Retirement Systems website, all state and county full-time employees with non-hazardous jobs who began participation with the retirement systems after Jan. 1, 2014, contribute to a cash-balance plan. Participation is mandatory.

Members and employers contribute a specified amount into the member's account, which earns a guaranteed amount of interest at the end of each fiscal year. Depending on investment returns, there may be an additional interest payment added to the member's account.

When a member is eligible to retire, the benefit is calculated based on the member's accumulated account balance. A member earns service credit for each month they contribute to the cash balance plan.

Both Stivers and Osborne seemed optimistic that lawmakers could pass a major pension reform bill this session.

Osborne said any bill that is filed "would be something that has been discussed pretty thoroughly."

Jack Brammer: (502) 227-1198, @BGPolitics

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