July 24, 2013
The Kentucky Teachers’ Retirement System has been incredibly successful in protecting retired teachers’ health care after a drain on benefits was slowed by the passage of House Bill 540 in 2010.
The legislation put in place a “Shared Responsibility” solution to funding retired teacher health care after years of costs outweighed contributions made by active KTRS members and the state. Requiring participation by retirees, active teachers, school districts, and the state, HB 540 has enabled the state to stop redirecting money from the KTRS pension fund for health care — a practice that had moved over $560 million from the pension fund to the medical insurance fund since 2004, risking depletion of the pension plan by 2029, according to actuaries — and enact a long-term strategy to protect retired teachers’ health benefits.
Passage of the Shared Responsibility law, in combination with earlier changes including the addition of Medicare Advantage Passive PPO, has reduced the state’s actuarial accrued liability from $6.4 billion in June of 2008 to $3.2 billion in June of 2010. At the same time, KTRS has been able to save the state around $45 million a year and save local school districts and other employers $343 million per year.
It is true that more is expected from retirees under age 65 and active teachers under HB 540. Most active members were required to contribute an extra 1/4 of a percent of salary, pre-tax, into the KTRS medical fund in July 2010. That contribution will gradually increase to three percent by 2015. For retirees, the law requires payment of the Medicare Part B to Social Security if age 65 and older, and payment of same into the medical insurance fund if under the age of 65. (Retirees age 65 and over already pay the premium, so they experienced no change.)
Yet while more sacrifice is made, the system is gaining strength. Recent talks with the head of KTRS indicate that the system was expected to distribute $1.75 billion in pension and health benefits in fiscal year 2013 alone. And this amount increases each year as more teachers retire. Over the past three years alone, just the increase in benefits has been $252 million in pension and health benefits distributed to retirees—a dollar amount equal to the cost of providing 6,300 jobs, each with a $40,000 annual salary.
(It is also worth noting that money the state has borrowed to fund health benefits has been repaid to the KTRS pension plan through bonding authorized by HB 531 as passed by the 2010 General Assembly.)
Let’s take a brief look at the KTRS pension/medical insurance benefit information for the state as a whole for Fiscal Year 2012, as provided by KTRS. The total medical insurance benefits for Kentucky were $158 million; total annuity benefits were $1.364.4 billion. Combined total for Fiscal Year 2013 was $1.522.5 billion.
Some have asked what would happen to KTRS had HB 540 not passed the Kentucky General Assembly. According to a presentation given in May 2011 by KTRS’ Jane Gilbert, the answer can be summed up into two words: nothing good. Gilbert said not having a long-term solution to fund retiree health care would have forced the elimination of the medical benefit for retired teachers under age 65 “and teachers upon retiring would have to pay the full cost of health care, currently $7,068 per year (in addition to the Medicare Part B premium at age 65)” as of mid 2011, based on her presentation.
We don’t have to worry about that now. HB 540 is ensuring that active members have medical benefits available when they retire. In a nutshell, “Shared Responsibility” is allowing our teachers to retire “at a time of their choice, with greater retirement security,” stated Gilbert. It means lasting funding for health care for retired teachers and an end to underfunding of these benefits, and that’s some good news.
Have a great week.