Pension Reform Draft
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UNOFFICIAL COPY 17 SS BR 10 AN ACT relating to retirement. Be it enacted by the General Assembly of the Commonwealth of Kentucky: SECTION 1. A NEW SECTION OF KRS CHAPTER 61 IS CREATED TO READ AS FOLLOWS: (1) The General Assembly finds and determines that: (a) It is the intent of the General Assembly to establish and preserve a necessary and proper balance between promoting the general welfare and material well-being of the citizens of the Commonwealth and meeting the commitments made to the state’s current and future public sector employees and retirees; (b) The general welfare and material well-being of the citizens of the Commonwealth depend upon adequate funding for investments in vital public services, including but not limited to elementary, secondary, and postsecondary education, health care and public health services, public safety and public protection, roads and infrastructure, and economic development initiatives; (c) The funding requirements to support the Commonwealth’s current public pension systems are unsustainable and severely constrain the capacity of state and local budgets to allocate adequate funding to support vital public services and thereby undercut the General Assembly’s goal to promote the general welfare and material well-being of the citizens of the Commonwealth; (d) The crowding-out of investments in vital public services due to the unsustainable growth in the state’s pension systems' funding requirements makes the Commonwealth less attractive for private sector investment, which in turn hinders the economic growth and commensurate revenue growth that is necessary to support vital public services and the pension Page 1 of 505 XXXX Draft UNOFFICIAL COPY 17 SS BR 10 systems; (e) The general welfare and material well-being of the citizens of the Commonwealth depend on an attractive business climate conducive to attracting and retaining investment and jobs; (f) A substantial tax increase to fund the Commonwealth’s current public pension systems would seriously hinder the state’s business climate and ability to attract investment and promote job creation; (g) Under federal regulations, private pension plans with an unfunded ratio below eighty percent (80%) are designated as "endangered." None of Kentucky’s major public pension plans currently exceeds a sixty percent (60%) funded ratio. Third-party experts working on behalf of the Commonwealth have reported that, without major reforms, the pension plans could face insolvency, and, therefore, be incapable of providing benefits to retirees. Immediate and significant steps are required to preserve the pension benefits promised to current and future retirees; (h) Immediate and significant steps are required to provide state and local budgets with immediate and long-term relief from the unsustainable funding requirements of the Commonwealth’s public pension systems; (i) Contemporary retirement planning is composed of three (3) components: Social Security, employer-sponsored retirement plans, and personal savings. The United States Bureau of Labor Statistics reports that defined contribution plans are the most prevalent type of employer-sponsored retirement benefit offered by employers, especially for nonhazardous professional and management positions; (j) Hazardous duty occupations, such as police, firefighters, and corrections officers, are confronted with stressful, dangerous, and potentially life- threatening work conditions that, when compared to nonhazardous Page 2 of 505 XXXX Draft UNOFFICIAL COPY 17 SS BR 10 occupations, results in distinct differences in the average length of service within those career fields. Those distinct differences should be considered in determining what the most appropriate employer-sponsored retirement plan should be provided to public sector hazardous duty employees; (k) Nothing in this Act impairs the ability of current members of the Commonwealth’s public retirement systems from reaching the threshold service requirement to receive an unreduced benefit; and (l) The General Assembly preserved the right to amend, suspend, or reduce the benefits and rights of members who began participating in the Kentucky Employee Retirement System, County Employees Retirement System, State Police Retirement System, Legislators' Retirement Plan, and the Judicial Retirement Plan, on or after January 1, 2014. (2) The Kentucky General Assembly hereby declares that the reforms to the Commonwealth’s public retirement systems contained within this Act are reasonable and necessary to serve the legitimate and important purpose of meeting the retirement commitments to public sector employees and retirees, providing immediate and long-term relief to state and local budgets, and allowing for the reallocation of significant funding for investments in vital public services. The actions undertaken by this Act meet the General Assembly’s intention to promote the general welfare and material well-being of the citizens of the Commonwealth and to meet any retirement commitments made to the state’s current and future public sector employees and retirees. SECTION 2. KRS CHAPTER 18B IS ESTABLISHED AND A NEW SECTION THEREOF IS CREATED TO READ AS FOLLOWS: As used in this chapter, unless the context requires otherwise: (1) "System" means the Public Employees Retirement System established by this chapter; Page 3 of 505 XXXX Draft UNOFFICIAL COPY 17 SS BR 10 (2) "Board" means the board of trustees of the plans as provided in Section 19 of this Act; (3) "Employee" means: (a) Members of the General Assembly who are required to participate in the system as provided by Section 25 of this Act; (b) Judges and justices who are required to participate in the system as provided by Section 26 of this Act; and (c) Every regular full-time employee who is employed by an employer as defined by subsection (4) of this section who is: 1. Required to participate in the Public Employees Retirement System as provided by Sections 59 and 110 of this Act; or 2. Required or elects to participate in the plan established by Section 109 of this Act but is not required to make mandatory contributions to the Public Employees Retirement System; and (d) Any regular full-time employee of an employer who makes an election to participate in the Public Employees Retirement System as provided by Section 68 of this Act and any employees who participate in a voluntary lump-sum buyout program offered in the future under the authority established by Sections 25, 26, 59, and 110 of this Act; (4) "Employer" means each agency participating on June 30, 2018, in the: (a) Kentucky Employees Retirement System, the County Employees Retirement System, and the State Police Retirement System, except for those employers who pay the actuarial costs to voluntarily or involuntarily cease participation in the systems administered by Kentucky Retirement Systems pursuant to Section 68 of this Act; (b) Legislators' Retirement Plan and the Judicial Retirement Plan; and (c) Teachers' Retirement System, except for those employers who pay the Page 4 of 505 XXXX Draft UNOFFICIAL COPY 17 SS BR 10 actuarial costs to voluntarily or involuntarily cease participation in the Teachers' Retirement System pursuant to Section 111 of this Act; (5) "Creditable compensation" means all salary, wages, tips to the extent that the tips are reported for income tax purposes, and fees paid to the employee as a result of services performed for the employer or for time during which the employee is on paid leave, which are includable on the employee's federal form W-2 wage and tax statement under the heading "wages, tips, and other compensation," including any employee contributions picked-up or paid on a before-tax basis under Section 6 of this Act. Payments upon termination of employment for accumulated sick leave, compensatory time leave, annual leave, or any other form of leave, shall not be considered creditable compensation; (6) "Regular full-time position" means a position that meets the definition of: (a) A regular full-time position in the Kentucky Employees Retirement System or the County Employees Retirement System as provided by subsection (21) of Section 61 of this Act and subsection (21) of Section 62 of this Act, as applicable; or (b) Full-time in the Teachers' Retirement System as provided by subsection (21) of Section 113 of this Act; (7) "Beneficiary" means the person or persons or estate or trust or trustee designated by the employee to receive any plan benefits in the event of the employee's death; (8) "Person" means a natural person; (9) "Fiscal year" of the plan means the twelve (12) months from July 1 through the following June 30; (10) "Participant" means the persons described by Section 5 of this Act; (11) "Authority" means the Kentucky Public Employees Deferred Compensation Authority as provided by KRS 18A.230 to 18A.275; and Page 5 of 505 XXXX Draft UNOFFICIAL COPY 17 SS BR 10 (12) "Disabled" or "disablement" means a participant who has been determined to be disabled by the Social Security Administration or who has been approved to receive disability retirement benefits from the Kentucky Retirement Systems, Teachers' Retirement System, Legislators' Retirement Plan, or the Judicial Retirement Plan. SECTION 3. A NEW SECTION OF KRS CHAPTER 18B IS CREATED TO READ AS FOLLOWS: (1) There is hereby created and established a fund called the public employees retirement fund which shall consist of all the assets of the system as set forth in this chapter. (2) All assets received by the system shall be held for the exclusive benefit of plan participants and their beneficiaries and applied solely as provided by the system. SECTION 4. A NEW SECTION OF KRS CHAPTER 18B IS CREATED TO READ AS FOLLOWS: (1) Effective July 1, 2018, the board shall establish the Public Employees Retirement System, which shall be a defined contribution plan consisting of benefit options that provide for an individual account for each employee and under which benefits are based solely on the contributions credited to the participant's account as adjusted by any applicable investment earnings and losses on those contributions.