Governor announces “Keeping the Promise” plan to save pension systems
Governor Matt Bevin along with Senate President Robert Stivers and House Speaker Jeff Hoover announced plans to fix Kentucky's ailing pension system on Wednesday morning.
They are calling that plan "Keeping the Promise," and Governor Matt Bevin says it will fix the state's pension problem. Bevin says the plan will save Kentucky's pension systems while meeting obligations to current/retired public servants & teachers.
The governor says there will be no increase in the full retirement age for those who are still working.
Current and future hazardous employees, such as police officers and firefighters, will also continue in their current pension system. New employees will continue to enroll in the current cash balance plan but may elect to switch to a defined contribution plan. Current workers would continue accruing benefits under the current system until they turn 65 or hit 27 years of service when they would be moved into a 401(k)-style plan.
As for teachers, Hoover commented during the news conference that the plan will not increase the retirement age or change pension plans for current teachers. Future teachers will have to enroll in 401 (k) investment accounts.
“If we go into a 401 (k) style plan with no option for social security, which we don’t want —because we want a defined benefit system. One, it makes more financial sense for the state, and it benefits the employee; they are guaranteed a benefit until the day they die,” said Stephanie Winkler who is the president of the Kentucky Education Association.
Bevin says Kentucky has a $60 billion hole and will still require $1.2 billion to fund it in the next budget session. He says the next budget session will be difficult.
"When you have a plan that fulfills every promise, that delivers on everything that is contractually required, that addresses every single person and takes into consideration both what is legally and morally appropriate, and that even when it's done everybody is slightly unhappy with, you know you have the right plan, and we have the right plan," Governor Bevin said.
The governor says he will call a special session as soon as possible.
Hoover says there could be public hearings on the pension proposal before a special session begins.
Kentucky Democratic Party Chair Rep. Sannie Overly released a statement saying:
"Switching new teachers and new nonhazardous state employees to a 401(k)-style plan will not only weaken local economies throughout the state but will continue to decrease our ability to attract and retain a skilled state workforce," Overly said.
"This is purely a move touted by ultraconservative groups across the nation to privatize state services, remove a skilled state workforce and drive down wages for our future educators. The war on the working class and public education must stop. This plan will do nothing to pay down our current pension obligations and ensures less retirement security for future generations to come."
If passed, the law will not go into effect until July 1, 2018.
Highlights of the plan include:
- “Keeping the Promise” will save Kentucky’s pension systems and meet the legal and moral obligations owed to current and retired teachers and public servants
- Requires full payment of ARC and creates new funding formula that mandates hundreds of millions more into every retirement plan, making them healthier and solvent sooner
- For those still working: no increase to the full retirement age, and current defined benefits remain in place until the employee reaches the promised level of unreduced pension benefit
- For those retired: no clawbacks or reductions to pension checks, and healthcare benefits are protected
- For future non-hazardous employees and teachers: enrollment in a defined contribution retirement plan that will provide comparable retirement benefits
- For current and future hazardous employees: will continue in the same system they are in now
- Closes loophole to ensure payment of death benefits for the families of hazardous employees
- Stops defined benefits plan for all legislators, moving them into the same defined contribution plan as other state employees under the jurisdiction of the KRS Board
- No emergency clause: law will not go into effect until July 1, 2018
- Structural changes should improve the Commonwealth’s rating with credit agencies, which have downgraded Kentucky’s rating, citing unfunded pension burdens