Overhaul of state pension plan in doubt; changes to Lexington plan possible

bmusgrave@herald-leader.comFebruary 19, 2013 

FRANKFORT — An overhaul of Kentucky's pension system will probably have to wait for a special legislative session, House Speaker Greg Stumbo said Tuesday. But there's still hope lawmakers will quickly approve a separate plan to stabilize Lexington's police and fire pension system.

State Rep. Ruth Ann Palumbo, D-Lexington, filed a bill Tuesday containing a compromise plan for the city's pension system that was hatched last month by Mayor Jim Gray, police and fire unions, and pension board members.

The plan was ratified in recent days by 76 percent of active and retired police officers and firefighters.

House Bill 430 would reduce the police and fire pension plan's $296 million unfunded liability by almost half, to $160 million.

If the legislature approves the deal, the Lexington-Fayette Urban County Government would commit $20 million a year — up from the current $11 million — to more aggressively pay off the pensions' unfunded liability over the next 30 years.

Police officers and firefighters likewise would pay more of their salaries into the pension fund. Retirement benefits would be trimmed in several ways, including smaller cost-of-living adjustments for some retirees, smaller base pensions for disability retirements, and a reduced payout formula for new hires. Future employees would be expected to work longer before they retired.

In union votes, 70 percent of active firefighters and 67 percent of retired firefighters approved the plan. Police were more supportive, with 85 percent of active police officers and 82 percent of retired police officers ratifying the agreement.

Stumbo said he supports HB 430, calling it "a good start."

"I look forward to seeing this move forward and putting the pension system on firm financial ground," Stumbo said in a prepared statement issued by the city.

Reaching an agreement on how to fix the state's pension system has been more elusive.

Stumbo said Tuesday that lawmakers probably will not be able to get an agreement on how to fix the state system until a special legislative session is called sometime after the regular 30-workday session ends in March.

Stumbo and House Democrats are mulling several ways to raise additional cash for the ailing pension system, which has roughly half the money it needs to pay for benefits for current and future retirees. Some of those options include increases to the cigarette tax, allowing more slots-style instant racing gambling at horse racetracks, and expanding the state lottery to include more games.

Stumbo said he is not optimistic that he will have the 60 votes needed to approve a revenue-generating bill during the current legislative session.

"I really don't think that there are 60 votes out there for that right now," Stumbo said. "I think if we're going to address pension reform, a special session was assured a long time ago."

In a special session, only a simple majority of 51 votes is needed to approve a revenue-generating bill.

The Senate passed its pension-overhaul bill earlier this month, but the measure did not specify where the state should find more than $100 million in General Fund money needed by July 2014 to help stabilize the system. Senate Republicans have said that the issue can be addressed during the 2014 legislative session, when lawmakers must approve a new two-year budget for the state.

Senate Bill 2, which includes recommendations from a bipartisan task force assembled this summer to address pension reform, would move new state employees to a 401(k)-style hybrid plan and eliminate automatic cost-of-living increases for new employees.

Senate Majority Leader Damon Thayer, R-Georgetown, said Tuesday that it was too early to say whether a special session will be needed.

"There are still a lot of working days in this session, and a bipartisan consensus plan on the table," he said. "It's too soon to punt on pensions."

Wednesday is the 15th workday of the 30-day session.

Senate President Robert Stivers, R-Manchester, said he did not understand why the House would agree to a bipartisan task force and then go against its recommendations.

"It does not make any sense," Stivers said.

Stumbo said House Democrats are considering a proposal that would preserve a defined-benefit pension plan for new hires instead of offering them a 401(k) hybrid plan that comes with a guaranteed return on investments.

Any annual cost-of-living increases would have to be pre-funded by lawmakers, Stumbo said.

The Democratic caucus is scheduled to meet Wednesday to discuss some of the funding options for the plan.

Stumbo said a finalized bill could be ready by late this week or early next week.

Other bills filed Tuesday, which was the deadline for filing legislation in the House, include:

■ House Bill 2, which is expected to eventually contain a plan to redraw the boundaries of House districts. Stumbo said Democratic leaders hope the House approve a redistricting plan by the end of the session in March.

■ House Bill 443, a constitutional amendment that would allow casino gambling in Kentucky. The measure has little chance of passing this year, leaders have said.

■ House Bill 456, which would allow private investments in public transportation projects, including construction of a new bridge in Northern Kentucky. Among other things, the measure would allow for tolls on the new bridge.

Beth Musgrave: (502) 875-3793. Twitter: @BGPolitics. Blog: Bluegrasspolitics.bloginky.com.

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