The benefits offered to the Commonwealth’s employees – including both pensions and retiree healthcare – are generous compared to the national and regional private sector. PFM’s Report #2 on “Benefit Structure” includes their analysis of cash compensation and benefits for the Commonwealth’s employees. Key findings include:
Most private employers nationally now support retirement primarily through 401(k)-style defined contribution (“DC”) plans, and funding for retiree healthcare benefits has become increasingly rare across private industry.
Relative to the 12 largest private Kentucky employers, the value of retirement benefits for the KRS plans also compares highly favorably.
While public employers are still more likely to provide traditional defined benefit (“DB”) pensions and retiree healthcare benefits, most states – including Kentucky – have modified benefits within the past decade to address sustainability concerns.
In addition to the Commonwealth and its “hybrid’ cash balance plan for recently hired KERS and CERS participants, 18 other states nationally now offer hybrid and/or DC plans for civilian workers.
While Kentucky teachers do not participate in Social Security (they do participate in Medicare), the value of their DB pension nonetheless provides a comparatively generous overall benefit. Among the relative advantages of Kentucky’s teacher plan, participants can retire at any age with 27 years of service or at age 55 with 10 years of service (5 years of service if hired before 7/1/2008). As a result, according to actuarial reports, the average age at retirement of a TRS member is 55 – below the age when teachers in many other states are even eligible for reduced benefits.
Of 20 states benchmarked in detail in PFM’s report, Kentucky was also among just four states that fully fund the employer contribution for teacher pensions at the state level. In contrast, nine states require local school districts to fund fully these contributions, and seven states share a portion of the contribution with local districts.
Source: PFM Group Consulting report, May 22, 2017. For more information about this topic, click here to see relevant portions of that report.