How will the new Kentucky teacher pension reform affect you?

On Thursday, March 29^th, Kentucky legislature passed Senate Bill 151 which included an amendment to reform Kentucky’s pension system. The changes to the Kentucky Teachers’ Retirement System pension have not fully been revealed at this point but based on details in the recent reform proposal (SB1) and other known details of the new legislation (SB151), we can start to piece together how this will affect teachers’ retirement benefits.

Let’s address the real questions that everyone’s asking, “What does it all mean? And, how does it affect me?”

Before we dive too far into my interpretation of the changes, it’s important to note three things:

1. the changes have been officially voted on and passed by the Kentucky House and Senate…but due to its hasty adoption and lack of actuarial analysis, it may face additional legal hurdles before permanent adoption
2. while the major points of the plan have been released, there are still minor details yet to be revealed that could change or require adjustments to my interpretation, and
3. this is only one person’s interpretation of the changes and its effects.

Please approach the rest of my words with a healthy amount of skepticism knowing that the interpretation may need revision as the full details of the plan are made available.

Now, with that C.Y.A. clause out of the way, let’s get down to it.

“What Does It All Mean?”

Here are the key changes (or non-changes as compared to previous reform bills) that you need to know:

• NO changes for current retirees’ benefits
• NO change to the Cost-of-Living Adjustments (COLAs) for current or future retirees (remains at 1.5% annually)
• NO changes to the full retirement eligibility (i.e. 27 years of service or age 60), benefit factors used for pension calculations, or calculation of final average salary (i.e. High 3 or High 5) for current teachers
• On 12/31/18, the amount of unused sick leave used to calculate pension benefits will be capped at each individual’s accrued amount on that date
  • Does not change the school district’s decision to pay a lump sum at retirement for unused sick leave, but rather, only what may be used to enhance pension calculations/benefits
• For current teachers retiring after 1/1/19 and becoming reemployed with a school district, no second retirement account in the Teachers’ Retirement System will be permitted if receiving a pension benefit
• BIGGEST CHANGE…NEW teachers starting on or after 1/1/19 will be placed in a hybrid cash balance plan (hybrid 401k/pension), instead of the traditional pension

“How Does It Affect Me?”

If you’re not sure how these changes apply to you, don’t worry. It has taken me several hours of reading and discussing with colleagues and friends to get to a point where I feel comfortable with my interpretation of the change and its impact. With that said, here’s how I think current and new teachers will be impacted:

(*Previously linked calculator has been disabled)