A Citizen's Guide to Kentucky's Pension Crisis | Page 9

Social Security’s role

PENSION TERMS
DEFINED

An important part of the retirement equation for public employees is whether
they are eligible for Social Security benefits. Unlike other government employ-

DEFINED CONTRIBUTION PLAN
A retirement plan to which the employer,

ees, Kentucky teachers do not participate in Social Security and are not eligible

and often the employee, contribute a

for benefits. Because of this, teacher retirement benefits are higher than those

defined amount (for example, 8 percent

provided to state and local government employees.

of salary) to an account in the employee’s
name while the employee is working, but
which does not guarantee a set benefit.

A task force studying teachers’ retirement recently discussed moving new teach-

The amount available for retirement is

ers to a DEFINED CONTRIBUTION PLAN (401K plan) and placing them

based on the amount of money that has

in Social Security. A number of issues arose from this proposal, including:

been saved, along with investment income
credited to the employee’s account. When
a retiree receives all of these funds, the

• The retirement benefits provided to teachers from a 401K

benefit is exhausted.

plan would be about half of the amount provided by the
current retirement system.
• The unfunded liability of the teachers’ retirement system
(more than $13.9 billion) would still have to be addressed for
the more than 127,000 active and retired teachers participat-

EMPLOYER/EMPLOYEE
CONTRIBUTION
The amount paid by the employer and
employee each month into the employee
pension plan. The contribution is usually
based on a percentage of the employee’s

ing in the current system.

salary/wages.

• The state would have to pay the EMPLOYER CONTRIBUTION
for Social Security (6.2% of payroll) for new teachers.

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