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Pensions Aren’t Just A Kentucky Problem. Here’s What Other States Have Done


As Kentucky lawmakers consider moving most future and thousands of current workers into 401(k)-style retirement plans, the commonwealth can look to a few other states that have had to address pension issues in the wake of the recession.

Many states have enacted changes that shift more of the burden of public retirement programs onto employees, require increased employee contributions and tweak benefits.

But few have enacted sweeping changes like the ones proposed by Gov. Matt Bevin, which would effectively phase out Kentucky’s pension system that guarantees retirement payments to public employees for life.

Alex Brown, research manager for the National Association of State Retirement Administrators, said 401(k)-style plans don’t typically lead to secure retirements because the plans don’t set out to replace pre-retirement income.

“The benefits are not based on a targeted replacement rate, they’re based on the accumulated value of an employee’s individual account,” Brown said.

According to a NASRA report on changes made to pension plans since 2005, nearly every state kept their traditional pension plans but restructured benefits and modified employer and employee contributions.

Six states moved to “hybrid” 401(k)-style plans that aren’t as generous as conventional pensions, but the state still guarantees that employees will get a certain return on their retirement investments — even if the stock market tumbles.

Kentucky moved most newly hired workers onto hybrid plans starting in 2014, but they would all be moved into the 401(k)-style model under Bevin’s proposal.

Only Michigan, Alaska and Oklahoma have plans that require most state workers to enroll in the 401(k)-style plans.

Michigan has required most state employees to be in the 401(k)-style plans since 1997 and just this summer, Gov. Rick Scott signed a law that moved future teachers into the plan.

Oklahoma closed its conventional pension system to future workers in 2015, moving new hires to 401(k) style plans. Teachers and first responders were exempted from the changes.

Of all the states that made changes since the recession, only Rhode Island made changes that required current employees to participate in a new retirement plan. After a legal challenge, the law was modified to only affect state workers with less than 20 years of service.

Under Bevin’s plan, most current workers — including teachers — would have benefits from their conventional plans capped and be transferred to the 401(k) style plans after 27 years of service.

Thousands of workers hired in 2014 or later would be automatically transitioned to the 401(k) plans.

West Virginia: A Cautionary Tale?

Lawmakers in West Virginia closed their conventional pension system to future education employees in 1991, moving new hires onto 401(k)-style plans.

With no new teachers entering the conventional teacher pension system, the plan had to pay out benefits to nearly 27,000 retirees by 2005 and had fewer than 18,000 active teachers paying into the system.

Meanwhile, new employees enrolled in the new 401(k)-style plan failed to accumulate enough money to put towards retirement. According the National Institution on Retirement Security, the average account balance was just $41,478 in 2005, and only 105 of the 1,767 teachers over age 60 had balances over $100,000.

West Virginia reopened the conventional pension system to current and newly hired teachers in 2008 — about 80 percent made the switch.

“What happens when you close a plan to new hires is you starve the plan of those contribution dollars that would be paid by the new members as well on their behalf by the employer,” said Brown with the National Association of State Retirement Administrators.

Bevin’s plan goes far beyond moving workers onto the 401(k) plans — the proposal would require all workers to pay 3 percent of their salaries for the retirement health program, suspend cost of living adjustments for 5 years and suspend pensions if retirees return to the public sector, among other changes.

Bevin said he’ll call lawmakers back to Frankfort later this year to consider the changes, but so far legislative leaders say the plan still needs work.

Ryland Barton is the Managing Editor for Collaboratives. He's covered politics and state government for NPR member stations KWBU in Waco and KUT in Austin. He has a bachelor's degree from the University of Chicago and a master's degree in journalism from the University of Texas. He grew up in Lexington.

Email Ryland at
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