Kentucky Teachers’ Retirement System March 17, 2010 Information for Kentucky Educational Development Corporation Gary L. Harbin, CPA Executive Secretary

Millions Primary Funding for Medical Insurance Fund $ 125m $ 62m $ 73m $ 29m $ 139m $ 134m $ 335m State Match Equals member contribution Redirected Retirement Contributions Redirected Contributions to be Repaid Member Contribution ¾ of 1% of member salary $ 562m ~ Kentucky Teachers’ Retirement System ~ - $ 6.0m - $ 14.0m - $ 12.0m - $ 9.0m Contributions Repaid by Commonwealth =$20.0=$48.0=$61.0=$119.0 $ 897m - $41m = $ 856m Less payments of $ 41m

Chart 1 for Discussion of Funding of Retiree Health Care * Current annual cost of retiree health care includes both the supplement paid directly by KTRS for members and the required Medicare Part B premiums paid directly by members age 65+ House Bill 1 - Active Teachers +1% for new hires after June 30, 2008 $0.9 m These charts show two opposite ends of the health care funding spectrum. They are for discussion purposes only. They are not proposed as potential solutions. The KTRS actuary is working on a range of alternative options for the active members, retirees and constituency groups to consider. Any solution would be phased in over a period of four to six years in the near future and would require legislative action. LEGEND FOR CHART 1 & CHART 2 Funding needed for retiree health care Amount needed to cover short-fall Not contributing to retiree health care Base funding required by statute System generated funding Directly paid by retirees age 65+ Added cost of teachers working longer Cost shifted directly to retirees

These charts show two opposite ends of the health care funding spectrum. They are for discussion purposes only. They are not proposed as potential solutions. The KTRS actuary is working on a range of alternative options for the active members, retirees and constituency groups to consider. Any solution would be phased in over a period of four to six years in the near future and would require legislative action. Chart 2 for Discussion of Funding of Retiree Health Care LEGEND FOR CHART 1 & CHART 2 Funding needed for retiree health care Amount needed to cover short-fall Not contributing to retiree health care Base funding required by statute System generated funding Directly paid by retirees age 65+ Added cost of teachers working longer Cost shifted directly to retirees House Bill 1 - Active Teachers +1% for new hires after June 30, 2008 $0.9 m Indirect Impact

Education Community’s Long Term Plan of Shared Responsibility for Funding Retired Teachers’ Health Care Medical Insurance Fund FY FY Projected covered payroll (000,000s) $ 3,452.0 $ 3,556.0 Active Teachers FY FY FY FY FY FY FY Currently at.75% (1.75% hired on or after July 1, 2008) Rates will match for FY % Increase medical contribution (Note: 1% increase is less than 1 months premium)0.25%0.50%1.00%1.50%2.25%3.00% %1.25%1.75%2.25%3.00%3.75% Retired Teachers Retirees under Medicare eligible age estimated monthly cost CY 2010CY 2011CY 2012CY 2013CY 2014CY 2015CY ,600 16, Pay equivalent to the Medicare Part B Premium paid by retirees age 65+ phase in starting July 1, Employers School districts and other employers FY FY FY FY FY FY Phase into paying a medical contribution for retirees0.25%0.50%1.00%1.50%2.25%3.00% State Pick up net health care cost for new retirees under Medicare eligible age CY 2010CY 2011CY 2012CY 2013CY 2014CY 2015CY ,800 3,600 Current KEHP premium and future estimated premium Less projected Medicare equivalent premiums paid by retirees Net cost for State per new retiree starting July 1, Amount State redirects to fund retiree health care to be repaid over 10 years at 7.5% $ $ 169.0

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