HIGDON TO FILE BILL AIMING TO FURTHER STABILIZE TEACHER'S PENSION SYSTEM

HIGDON TO FILE BILL AIMING TO FURTHER

STABILIZE TEACHER'S PENSION SYSTEM

Senate Bill 4 will ensure cost transparency and viability of the TRS sick leave program

FRANKFORT, KY (January 22, 2024) — Senator Jimmy Higdon, R-Lebanon, who serves as the Public Pension Oversight Board (PPOB) co-chair, will file Senate Bill 4 (SB 4) this afternoon. The background and purpose of the measure were discussed during yesterday afternoon's PPOB meeting. 

Under state law, local school districts must provide no less than 10 days of sick leave to full-time school employees. At the time of retirement, 30 percent of the value for these days is paid as compensation, influencing retirement benefits and the resulting retirement costs billed to the state.

The program currently has no mechanism for TRS to track sick days during a working teacher's and administrator's career, which would assist in determining the cost of the sick day program. State costs have more than doubled historically reported values and liability. Other forms of leave added to sick leave balances, such as personal days, emergency days, and annual leave, are inflating sick leave balances of some. In one case, TRS reported a retiree accumulated 591 sick days after 25 years of service.

SB 4 will not be retroactive, meaning there will be no changes to employees' already-accumulated sick days for retirement purposes. Rather, there will be a greater emphasis on sick leave reporting to TRS and adherence to a 10-day limit moving forward for purposes of payment at retirement and inclusion in the final average salary of a retiring teacher.  School districts will also have the option to purchase service credit in TRS for any sick leave accrued above this 10-day prospective increase for retiring teachers and administrators. 

The provisions of SB 4 will provide TRS and lawmakers a fuller understanding of the pension liabilities, ensure that other forms of leave balances among certain employees are not inflating costs, and ultimately further the General Assembly's commitment to fully fund and improve the long-term viability of TRS.  The measure serves to ensure every classroom teacher and administrator is treated equally. 

GROWING COSTS OF THE SICK LEAVE PROGRAM

For years, costs of the sick leave program have been reported to be roughly $40 million annually with a liability of around $380 million. In recent years, through the work of PPOB, lawmakers received confirmation from the TRS actuary that the liability for the sick leave program was around $800 million—more than double what was previously reported to the legislature. In the 2022 state budget, the Kentucky General Assembly paid off $380 million in costs attributable to the TRS sick leave program. I have requested that the General Assembly pay off the remaining sick day liability, in this year's budget, which is around $538 million. 

"We still have a way to go to get TRS financially stabilized, and that starts with getting liabilities paid down," Higdon said. "There are many variables in the retirement equation, and each of them has a cost, so we have to have accountability. Our main goal is to keep the promise made to those in the system."

FUNDING FOR TEACHER'S PENSIONS

Since 2016, the General Assembly has put over $10.6 billion into TRS which reflects record funding well above the statutorily required amount. Nevertheless, even with these contribution levels, the system's funded level has only improved marginally. In fact, the unfunded liability has increased and will require even greater funding in the future.

"I believe this bill will help level the playing field and will be one more step toward improving TRS," Higdon said. "It will make sure teachers and administrators are treated equally."

The state currently pays approximately $1.2 billion to TRS annually, but the projection is expected to surpass $2 billion annually by 2030.

The General Assembly will continue its financial commitment in the 2024-25 biennial budget currently in progress. 

Visit Legislature.ky.gov to learn more about Higdon, PPOB, and to find all other legislation being considered by the Kentucky General Assembly during the 2024 Legislative Session. Visit Legislative Research Commission YouTube Channel for yesterday’s PPOB meeting playback. Follow additional legislative coverage at KET.org/legislature.

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Senator Jimmy Higdon, R-Lebanon, represents the 14th Senate District, including Larue, Marion, Nelson, Spencer, and Washington Counties. Higdon serves as Senate Transportation Committee chair. Higdon is also the Public Pension Oversight Board co-chair. He serves as an Education; Licensing and Occupations and Veterans, Military Affairs, and Public Protection committee member. Higdon previously served as a Medicaid Oversight and Advisory Committee member, which was restructured as a part of the new Senate Health Services Committee.