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The Kentucky Capitol in Frankfort (WDRB)

LOUISVILLE, Ky. (WDRB) -- A bill creating a new pension tier for future teachers that will require them to pay more toward their retirement and work longer before they can earn full benefits passed the House Thursday.

House Bill 258, sponsored by Rep. C. Ed Massey, moved to the House floor on a 14-4 vote and cleared the lower chamber hours later on a 68-28 vote. The measure, if passed, would put teachers and others covered by the Kentucky Teachers Retirement System hired after Jan. 1, 2022, into a new hybrid pension plan that includes foundational and supplemental benefits.

Massey, R-Hebron, said the proposal would keep future hires from joining "an already burdened and overtaxed" defined-benefit pension system at KTRS, which actuaries expect will have unfunded pension liabilities totaling $14.8 billion and have 58.4% of the money needed to cover pension costs for current retirees and workers by fiscal year 2023.

That was a constant refrain from supporters on the House floor. While the state has maintained its share of employer expenses for KTRS, lawmakers say previous legislatures ignored fully funding the teachers' pension system on an actuarially sound basis until recently.

"The problem is the (actuarially required contribution) has gotten out of control," Rep. Jim DuPlessis, R-Elizabethtown, said on the House floor. "... What we didn't do until about four years ago was fully fund the ARC."

Massey cited estimates that the foundational and supplemental benefits created by HB 258 will replace about 74% of future employees' salaries if it becomes law.

"It's very comparable to what we are currently getting in the current system, but it will stop the bleeding," Massey said during Thursday's House State Government Committee meeting.

Newly hired non-university members of KTRS would be required to contribute 14.75% of their pay if HB 258 becomes law -- 9% toward a foundational benefit similar to the current pension plan, 2% toward a supplemental benefit more akin to a defined-contribution retirement account and 3.75% toward retiree health insurance. Current non-university members of KTRS pay 9.105% of their compensation toward pension benefits and 3.75% toward retiree health insurance.

Newly hired university members of KTRS will actually pay less for their retirement benefits under the bill, which calls for them to contribute 5% of pay toward a foundational benefit, 2% toward a supplemental benefit and 2.775% toward retiree health benefits. Current university members pay 7.625% of their compensation toward pension benefits and 2.775% toward retiree health insurance.

Those hired into the new benefit tier could retire with full benefits by age 55 only if they have 30 years of service in Kentucky. Benefits for teachers who retire at age 55 with at least 10 years of service but not 30 years would be reduced under the bill.

Future teachers would be eligible for retirement by age 60 with at least 10 years of service and by age 65 with at least five years of service, according to HB 258.

Current KTRS members can retire with full benefits with 27 years of service in the state regardless of age.

Massey developed HB 258 with input from several state education groups and earned support from groups like the Kentucky Association of School Superintendents, Kentucky Association of School Administrators and the Kentucky Council on Postsecondary Education.

"We believe it has all of the essential ingredients that we need to sustain the profession," Rhonda Caldwell, executive director of KASA, told lawmakers on the House State Government Committee. "Considering that public education is the cornerstone of society, we need a strong retirement plan to sustain the education profession, both from a recruitment and retention standpoint, over time."

But the Kentucky Education Association and Jefferson County Teachers Association have taken a neutral stance on the legislation.

Unlike Caldwell, KEA President Eddie Campbell said his members worried that HB 258 would make recruiting new teachers to Kentucky more difficult. The current defined-benefit pension plan would be viable with consistent and adequate funding, he said.

If passed, HB 258 will represent a cut in pay and guaranteed benefits for future teachers, Campbell said.

"Kentucky is in the throes of an educator shortage," he said. "This is real, and instead of addressing the problem by trying to make the profession more attractive, we're here discussing pension reform bills.

"We should be having conversations about increasing educator pay, and we are not. We should be talking about how to support new educators with paid professional development, experienced mentors and fully funded classrooms, but we're not talking about that either."

Massey said he understood and shared many of the concerns shared by Campbell.

"We are going to have those conversations in time to come," he said. "We can deal with one thing at a time, especially in a short session, and we're just trying to stop the bleeding."

Both Campbell and JCTA President Brent McKim credited Massey for working to alleviate concerns raised by their respective organizations. Their governing boards have not voted to support or oppose HB 258 yet, they said.

"We did work in good faith on this bill, and we're not opposing the bill because there was, I think, a lot of effort made to address concerns that we brought," McKim said. "… My read of my governance bodies was essentially to say we support it would be to say we prefer this over what we have now and we're not saying that, but we're not objecting to the bill."

While the JCTA board had not taken a formal position on HB 258, McKim praised elements of the bill like the "very comparable" retirement benefits that will be offered to future teachers if passed into law. KTRS members retire by age 59 on average, he said.

"The preferred course of action among the folks that I represent would be continue with the current plan and continue to fully fund it," McKim said. "We believe that is in the long-term doable, but we understand there are differences of opinion and certainly the legislature was working toward this new tier concept, so we asked to be at the table."

Campbell said the KEA board had not meet since HB 258 was filed.

"Our board does not take positions on legislation until they are officially filed," he said.

KTRS is expected to pay off its unfunded pension liabilities by fiscal year 2048 regardless of whether HB 258 becomes law, but the legislation is expected to save $3.5 billion in employer costs over a 30-year period, according to the actuarial analysis of the legislation. Actuaries estimate that nearly $1.2 billion of those savings will be used in a new stabilization account created by HB 258 if it becomes law.

The KTRS board could tap that reserve account if the new foundational benefit's funding level fell below 90%. Other options for the board to shore up foundational benefit balances include using future supplemental benefit contributions and adjusting elements of the foundational benefit, such as when future members are eligible for full retirement.

Those provisions give the board more control over the plan's risk, said Beau Barnes, deputy executive secretary for KTRS.

"Those would help keep this new tier 100% funded," he said.

Democrats on the House State Government Committee -- House Minority Caucus Chair Derrick Graham and Reps. Kelly Flood, Patti Minter and Buddy Wheatley -- all voted against HB 258.

"I can't vote yes on something where the two major teacher groups, JCTA and KEA, have not formally weighed in, and I hope that this bill will not be rushed to the floor before they have the opportunity to make their official statement," Minter, D-Bowling Green, said during the committee meeting.

About two hours later, Minter again cast a vote against HB 258. Democrats and some Republicans opposed the measure when it came to the House floor.

"I'm concerned that we could not reach some kind of position that JCTA and KEA could get behind, but maybe that was never possible because there's no way to get around that this is a benefit cut," Minter said on the House floor.

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