SENATE APPROVES PRIORITY MEASURE STRIVING TO FURTHER STABILIZE TEACHER'S PENSION SYSTEM

SENATE APPROVES PRIORITY MEASURE STRIVING

TO FURTHER STABILIZE TEACHER'S PENSION SYSTEM

FRANKFORT, KY (Feb. 14, 2024) — The following is a statement from Sen. Jimmy Higdon, R-Lebanon, and Senate co-chair of the Public Pension Oversight Board (PPOB) following the Senate’s 24-12 approval of Senate Bill 4:

“State lawmakers have an obligation to the taxpayers of Kentucky and those within the respect state retirement systems to ensure their long-term viability, and it is especially true for me as co-chair of the important PPOB committee,” Higdon said upon the bill’s approval in the Senate on Wednesday. “Nothing in this bill takes away anything a school district employee has earned; everything is maintained.

“What the bill does is provide lawmakers and the Kentucky Teachers Retirement System (TRS) a better understanding of our liability related to the sick leave program to continue to financially stabilize TRS. SB 4 also creates a level playing field for rural and urban districts, teachers, and administrators.

“We’ve invested $10.7 billion into the system since 2016. That’s over $4 billion more than the law requires us to do. By 2030, we will pay $2 billion per year just to this one system alone. We must do what it takes to protect this pension system for our teachers. SB 4 is another step in doing that, and I appreciate my colleagues’ support of the bill.”

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BACKGROUND
The following information is from a February 7 press release from the Senate Majority Caucus regarding the efforts of PPOB and Higdon to address further the financial challenges facing Kentucky teacher’s retirement system.

Higdon filed SB 4 in January after providing background and the measure's purpose during January’s PPOB meeting.

Under state law, local school districts must provide full-time employees at least 10 days of sick leave. 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. These days will be allowed to accumulate but may not be factored into the final retirement benefit calculation. 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 the pre-existing 10-day statutory limit moving forward for purposes of payment at retirement and inclusion in the final average salary of a retiring teacher. Sick days may still be accumulated and fully paid out at the district level, just as they always have, so SB 4 does not create a ‘use it or lose it’ situation. The only change specifies that going forward the portion of the sick payout that can be used towards retirement benefit calculations will be limited to what an employee has accrued as of June 30, 2024, plus an increase of no more than 10 days per year after that date.

Any additional days will roll forward and be paid at retirement but do not add to final retirement calculation. Under the bill’s provisions, if a teacher uses any sick days during a year, personal days can still be rolled over to sick days in order to keep an employee’s yearly total at 10.

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.

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 the January 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.