FRANKFORT, Ky. — As state lawmakers continue to grapple with funding teacher pensions, some say lessons from neighboring West Virginia can offer insight into whether or not Kentucky should switch to a defined-contribution retirement plan for teachers or uphold its public pension system.
David Haney, executive director of the West Virginia Education Association, says in the early 1990s, the West Virginia Teachers Retirement System closed after decades of underfunding by the state. He says, when the state moved to offer teachers 401(k) plans, they were fraught with problems, including lack of diversification in stock options.
“The biggest problem was the state here in West Virginia offered no education for the participants in the plan,” he relates. “Education employees are not investment experts, and so consequently, many of the participants really suffered in terms of their ability to grow their investment.”
Haney says decades later, the 401(k) plan also left thousands of teachers grossly unprepared for retirement.
There are currently more than 40,000 public school teachers in the Commonwealth.
Larry Totten, president of Kentucky Public Retirees, says the state will have to grapple with a senior population down the road that might not have enough income to survive on.
“As a retiree, if you don’t have the income to sustain yourself, you’re going to have to rely on family, public assistance, something to stay alive,” he states.
Haney points out that in 2005, 83% of West Virginia teachers aged 60 and older had an average savings of just $23,000 in their 401(k). He adds, he knew the state would have to make some major changes.
“And that’s why we pushed very hard to go back to the defined benefit system,” he explains. “And so, in 2008, now senator, then Gov. Joe Manchin worked with us and the Legislature to reopen the defined benefit plan.”
Haney says when given the option to move back to a pension, nearly 80% of West Virginia teachers made the switch.