We are concerned that our legislature and governor stubbornly remain committed to a 401-a defined contribution pension system for all new teachers in Kentucky. Research studies clearly show that each dollar saved in a 401-a plan provides only half the amount of retirement income that the current plan-type provides, due to higher operating costs and not being able to diversify risks.
Such a decision is as wise as maxing out your VISA card and then opening a more expensive MasterCard account. Given their salaries, it will be almost impossible for new teachers to save enough for retirement, especially K-12 teachers since they are not allowed to participate in Social Security.
Defined benefit plans clearly remain the best option for both our government employees and public educators.
What will local teachers and school districts be giving up under the proposed new budget? Here is a partial list:
• New teachers will be required to enroll in a 401-a program with its higher fees, loss of professional investment management, and more exposure to stock market downturns near their retirement date. These teachers will need to take fewer investment risks as they get older – thus earning a lower rate of return as a result.
• Active teachers will be required to contribute $3,000 of their salary to pay off existing pension debt. For new teachers, this is an 8.5% pay cut. Education jobs are already among the lowest-paying occupations requiring a bachelor’s degree; this will make them much less attractive.
• Retirees under age 65 (who retired since 2010) will have to pay all health insurance premiums until they qualify for Medicare. For these retirees, this will cost at least $6,000 per year.
• Cost of living adjustments will be reduced by 50–100 % for both existing and future retirees. Over a typical 20-year retirement period, this loss can amount to giving up the equivalent of 1.5 years of pension income. This is despite the fact that teachers contributed to the funding of these COLAs.
• Local school districts will be required to cover 75% of the costs of transportation (i.e., buses). (In the 1990s, the districts paid for 0%.) This cost could range from $1 million to several million dollars, depending on the size of the county. (Christian County is the 2nd largest county in the state; Graves County is the 8th largest.)
• Retaining teachers will become much more difficult. Currently (according to the National Center for Education Statistics), about a fifth of all newly minted public-school teachers leave their positions at the end of their first year, and nearly half never last more than five.
For all these reasons, and especially the decline in the quality of public education that will be the result of these changes, we strongly urge our elected leaders to take a close look at gaining new revenue by closing some of the state’s $13 billion of tax loopholes before decimating our education system.