Teachers Retirement System urges full funding as House bill 500 provides major one‑time payoff but leaves biennial gaps

Beau Barnes, deputy executive secretary and general counsel for the Teachers Retirement System, told the House Budget Review Subcommittee on Personnel, Public Retirement and Finance that TRS’s budget request for the upcoming biennium sought full funding of pension and health trusts and that House Bill 500, as introduced, provides the single large payment needed to begin paying off legacy unfunded liability.

Barnes said the TRS spreadsheet distributed to committee members shows requested amounts alongside what HB 500 provides and the differences. He told lawmakers that a critically important line item — additional funding to pay off legacy unfunded liability — was included in full in HB 500 for the first year of the biennium, which under TRS’s plan reduces the amortization period from 30 years to 20 years and would lower the Commonwealth’s long‑term cost for teacher retirement obligations.

“Once we pay off that legacy unfunded liability and we’re 100% funded for the pension fund, the cost for the Commonwealth for TRS is slashed,” Barnes said during his presentation. He added that, depending on actuarial outcomes, TRS costs could be “less than Social Security” for some members under the funded plan.

Barnes detailed several line‑item shortfalls between TRS’s request and HB 500. For the first year of the biennium he identified a shortfall of about $100,300 for personal payments and roughly $91,500 for survivor benefits; a reconciliation credit from the prior period of $3,993,600 was also noted in the materials. For the two‑year biennium, Barnes reported the total difference between TRS’s request and the amounts in HB 500 as introduced at $79,506,800.

Barnes summarized TRS’s aggregate numbers: the system requested roughly $1,277,000,000 and HB 500 provides about $1,257,000,000 for the comparable year — a one‑year difference of about $19,904,400 — and a biennial shortfall of approximately $79,506,800. He said that while budgets are constrained, TRS respectfully requests consideration of full funding to avoid higher long‑term costs.

Committee members asked about timing and effects of splitting reconciliation payments. Representative Kevin (surname not stated) asked whether the SEEK formula reconciliation of approximately $47,220,600 could be split between fiscal 2027 and fiscal 2028; Barnes said splitting is possible but would delay investment income for one year and could marginally increase future contribution requirements because investment earnings are the primary source of retirement benefits.

On retiree health coverage, Barnes recounted the post‑2010 shared‑responsibility model in which active teachers and districts phased in additional contributions and newer retirees pay an amount roughly equivalent to Medicare Part B. He said the Kentucky Employees Health Plan premium increases (about 18–19%) feed into the state share calculations. Barnes told the committee the health insurance trust, “as currently funded,” is projected to be fully funded in two years, but he cautioned that changes in medical inflation or federal subsidies could alter that timing.

Representative Jackson asked what percentage the pension is funded at today; Barnes replied, “It’s 61%,” and added that about a decade earlier the level would have been in the mid‑to‑low 50s. When Representative Jackson estimated total underfunding for the state portion of shared responsibility at about $31,760,000 over two years and asked what that would mean for the average retiree, Barnes told the panel the trust was receiving good funding and that under current projections retirees should not see an immediate impact to their benefits.

Barnes also described actuarial consequences of delaying full funding: using a layered amortization approach with a 7.1% assumed rate, delaying payments could increase long‑term costs substantially compared with funding now. He offered an illustrative comparison that delaying the requested funding could raise cumulative costs materially over a 20‑year horizon.

Barnes closed by noting that the pension fund will mark a consecutive ten‑year stretch of full funding at the June 30 actuarial valuation (as referenced in his remarks) and reiterated TRS’s request that the legislature consider the system’s full funding plan. Chair Thomas moved to stand adjourned and the committee concluded the session.

Ending: The committee concluded the TRS presentation and took members’ questions; Barnes said he was available to review related cleanup legislation (House Bill 6) with members outside the hearing.