After months of speculation, we’ve finally got a pension bill. And it’s a doozy.
Senate Bill 1 was introduced this past Wednesday by Sen. Joe Bowen (R-Owensboro), who says the 30-year plan will effectively save the state’s public pension system. It differs wildly from Gov. Bevin’s proposal back in October, which would have raised the retirement age and switched teachers’ retirements over to a 401(k) system. As you may have imagined, that proposal went over with a resounding “thud.”
Senate Bill 1 has largely stripped down a lot of the more controversial ideas that Gov. Bevin proposed, so it’s widely viewed as a “better” plan than what teachers could have been dealt otherwise. (But that doesn’t make it a good pension plan though, like some have pointed out.) For better or worse, there’s a fair chance that this pension bill will become the law of the land, so it’s worth knowing how it will affect you. Here are the highlights:
Adiós, 401(k) Plans
- Senate Bill 1 rejected Gov. Bevin’s proposal to move teachers over to a mandatory 401(k) (or similar) retirement account. Instead, teachers who have already paid into the system will stay in their current plan.
- New teachers, on the other hand, will be placed into a “hybrid” system, which is less generous than the current pension system but not as volatile as 401(k) plans. These newly hired teachers will contribute just a little over 9% of their salary to their retirement plan, and the state will contribute 8%.
You Might End Up Teaching Longer
- If you’ve taught for over 20 years, you’ll be sitting pretty with full retirement benefits once you turn 55 and have 27 years in the system.
- If you’re a youngblood like me, though, it’s a little more complicated. Teachers with less than 20 years in the system will have to work until they turn 60 and have 35 years experience, if the current bill passes. You can probably guess how a lot of people feel about this.
Tighten Up That Pocketbook
- Under the current retirement system, we use something called the “high-3” average; that is, the 3 highest-earning years of a teacher’s career are averaged to determine their retirement benefits. Under the new pension plan proposed in Senate Bill 1, that wouldn’t change. But…
- Teachers up until this point have also been able to add up the value of their unused sick day pay to count toward their retirement, and that would stop if this new pension bill is passed. Only sick leave accrual through July 1st, 2018 would be able to count toward a teacher’s retirement. After that, sick leave pay won’t be added to the total.
- Annual cost-of-living adjustments (COLAs) are currently at 1.5% to match inflation, but would be scaled back to 0.75% for the next 12 years. Over the next 12 years, that means that the average retiree would miss out on nearly $73,000 of income. Yikes.
And of course, these are just some highlights of Senate Bill 1. You can find out even more at kyedpolicy.org, which is where all of these figures come from. There’s a really helpful Q&A session that helps explain the finer points of the bill, and there are even scenario explainers that can help you get a better understanding of how the bill would affect teachers in different circumstances. Go check out their page to keep up with all the latest legislative action!
Photo by Mark Goebel, CC-Licensed.