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Friday, March 30, 2018

Pension Bill Passes: Everything You Need to Know

Efforts to reform the state’s public pension systems have taken a winding road and faced uncertain prospects at times since the issue came to the forefront of public discussion last year. But after making changes based on input received from stakeholders throughout the General Assembly’s 2018 session, public pension legislation reached the end of its legislative journey this week as lawmakers approved a bill on the issue and delivered it to the governor’s office to be signed into law.

Fort Thomas Independent Schools are on their first day of Spring Break, which also happen to be Good Friday, but they held a walk-in to protest the cuts to education funding through Senate Bill 1 (pension) and HB 200 (budget). The budget bill, HB 200, is still in flux and could potentially include funding for construction of a new Johnson Elementary.

A house line item in that budget included over 10 million for the elementary school on the north side of Fort Thomas, but was removed from the Senate version with an increase for bonding capacity.

RELATED: Fort Thomas Education Community to Participate in Walk-In 

Fort Thomas Independent Schools Superintendent, Dr. Karen Cheser, said that she knew that something had to be done to address pensions, but the way in which is was passed was concerning.

"I’m glad that something got done because we all realized that the pension system was hurting, but there are some definite concerns on what the bill means for new hires. While we don't have a lot of new teachers that are hired within our district, a 2% contribution from the district will be felt in 15-20 years when we do essentially have all new staff."

Cheser cited HB 539, the Shared Responsibility Bill, as a viable alternative. She said the bill, which had broad support, would have actually saved more money than Senate Bill 1.

The bill's passage seems to have caused a chain-reaction of school districts are closing on Friday. Fayette County Schools started the trend and it was followed up by local district in Campbell County, Dayton Independent and Gallatin County Schools.

Campbell County Superintendent David Rust cited excessive absenteeism for Friday's closure.

"Due to excessive staff absenteeism in our schools and the inability to adequately fill absentee requests," he wrote.

Supporters of the bill say it would help reduce more than $40 billion in unfunded costs to the state’s pension systems. It received final passage Thursday by a 22-15 vote in the Kentucky Senate.

Governor Matt Bevin is expected to sign it.

Attorney General, Andy Beshear, is expected to fight it.

One notable change to the legislation in recent days was removing a provision that would have reduced the cost-of-living adjustment for retired teachers. The previous proposal would have reduced that adjustment from 1.5 percent to 1 percent, but there’s no such reduction in the plan lawmakers ultimately approved.

The goal is to stabilize pension systems that face more than $40 billion in unfunded liabilities. More funding is one part of the plan, according to the proposed state budgets both chambers have approved but, as of this writing, have not come to a final agreement on. Changes proposed by the pension reform legislation, Senate Bill 151, are aimed at shoring up the system in a number of ways, such as by placing future teachers in a hybrid “cash balance” plan rather than a traditional benefits plan and by limiting the impact of accrued sick leave on retirement benefit calculations.

Daniel Desrochers, from the Lexington Herald Leader summarized seven items teachers need to know about the pension bill:

Here are highlights of the plan that have a direct affect on Kentucky’s current and retired school teachers:

▪ New teachers hired after July 1, 2018, will be put into a hybrid cash-balance retirement plan, where they will contribute 9.105 percent of their salary to their retirement plan, the state will contribute 6 percent of their salary and school districts will contribute 2 percent. Cash-balance plans are individual accounts that are considered less generous than traditional pensions but more reliable than 401(k)-style plans. The new cash-balance plan does not include a guaranteed 4 percent annual return for teachers, unlike the cash-balance plan offered to state and county employees who have been hired since 2014. It does guarantee that teachers won’t lose money on their investments.

▪ Future teachers will have to work longer before becoming eligible for retirement benefits. All current teachers can still retire after 27 years of service and will receive a traditional defined-benefits pension, but future teachers will have to work 30 years and turn 57 or work until they turn 65 before they are eligible to retire.

▪ There are no cuts to annual cost-of-living increases for retired and current teachers, as the Senate had previously proposed.

▪ Teachers will no longer be able to accumulate new sick days to put toward their retirement after December 31. Any sick days accumulated before then can still be put toward their pension.

▪ Teachers will not have to contribute an additional portion of their salary into their retiree health insurance funds, as Gov. Matt Bevin had proposed.

▪ The bill ends the inviolable contract for new teachers hired after July 1, which means lawmakers can adjust the benefits provided by their retirement plan at any point in the future.

▪ The pension bill does not deal with a provision in Bevin’s proposed two-year state budget that would cut state funding for the health insurance of 8,554 retired teachers who are younger than 65. House and Senate leaders are expected to announce their compromise budget plan in coming days.

PHOTO: Teachers participate at a walk-in at Woodfill Elementary on Monday, March 26. 

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