During our Board of Regents’ meeting yesterday, representatives from the Staff Congress Pension Committee shared their recommendation on NKU’s option to exit the Kentucky Employees Retirement System (KERS). It was deeply impactful to read the personal stories of our colleagues and how the university’s decision regarding the pension could affect them. Their stories underscore what we know – the fate of the university and our employees are intertwined. We need strong, committed and engaged employees to lead our student success efforts, and NKU must be healthy and financially stable in order to support its employees.
Last month, I shared the two pension options we are considering that offer a financially viable path forward: The Soft Freeze Lump Sum option and the Hard Freeze Lump Sum option with an age-adjusted defined contribution plan. The age-adjustment seeks to minimize the impact from leaving KERS
. Under this scenario, we were looking at the benefits earned if an employee worked until age 65. But we realized that would push the envelope for many employees who had plans to retire earlier. We are now considering variations of that option: Hard Freeze with age adjustment at 55 or even 50, which looks at the scenario in which an employee could have retired with unreduced benefits from KERS at that age.
These scenarios are being considered in order to protect our employees’ future by covering their expected KERS pension with additional contributions into the TIAA plan. We are also considering compensating employees for any loss in health benefits.
Let me emphasize that I have not made a decision on my recommendation to the Board at this point. This is simply not a cut and dry issue. We are challenged to find a solution that presents the best option for both the university and our employees. We must take a long-term view and think of those who will retire in the near term as well as the impacts over the next 30 years.
In evaluating both the Hard Freeze Adjusted and the Soft Freeze options, we must take into consideration the debt burden, the impact on our credit rating, as well as the comparable state of KERS and the TIAA plan. As the most severely under-funded state pension system in the country, there are risks to employees if KERS were to fail, reduce benefit payments or extend the retirement age. According to a Pew Charitable Trust report, almost every state has made some change to its pension policy since the Great Recession of 2008, including strengthening funding policies, adopting more conservative assumptions, increasing employee contributions, changing the benefit design for new hires, reducing benefits for current employees and retirees, strengthening governance and improving transparency. The current pandemic has created another fiscal crisis for state governments and we remain in a recession. Juxtapose this with TIAA - the university’s defined contribution (DC) provider - the strongest retirement market provider in assets and participant accounts. IAA offers numerous choices of investments as it manages over $1.1 trillion in assets in over 50 countries. In addition the plan is portable and overall returns could well exceed the conservative 5% benchmark.
But as we heard through members of the Staff Congress Pension Committee, our employees are concerned about market risks of the DC plan especially for those close to retirement and possible turnover of experienced staff.
The pension options present a lot of information to take in, but my request to Tier 1 and Tier 2 employees is to spend time reviewing the implications of the Hard Freeze scenarios. Segal is creating an individual statement for each
Tier 1 and 2 employee that will show the personal details of their retirement benefits at age at their earliest retirement date or age 55, whichever is the later date. They will include caveats, assumptions and instructions for interpreting the statement as well. This will be available by November 18. The additional analysis pertaining to the Hard Freeze option with a retirement age of 50 will be available by the end of next week. I also urge us to carefully evaluate the full implications of the Soft Freeze option. We will also make both Segal consultants and TIAA financial advisors available to staff to answer questions that you may have. Our Pension Central website
is still the best place to visit for all our pension communications and updates. You can also send your questions and concerns with us by emailing firstname.lastname@example.org
Please remember that the pension crisis is not the fault of our employees nor the university. We made our required employer contributions over time even as they continued to escalate, reaching 49.5% a few years ago and potentially rising to 83% next year. In fact because the rate is determined as a percentage of payroll and not actual employee liability, we have been paying more than our fair share into an underfunded system. Which is why continuing in the KERS system is unsustainable, and we must exit the system. It is unfortunate, but I know we can find a solution together. This is essential to the financial health of the university as well as to the financial and emotional well-being of our employees.