FRANKFORT — A pension reform bill that would move new state employees to a 401(k)-style hybrid plan and eliminate annual cost-of-living increases for retirees cleared its first legislative hurdle Wednesday.
The Senate State and Local Government Committee voted unanimously — 10-0 — on Wednesday to pass Senate Bill 2. The measure now goes to the full Senate.
The bill contains the recommendations of a task force that studied Kentucky's ailing pension system last summer. The system has less than half the money it needs to pay for all current and future retirees.
Senate Bill 2 would move new state employees into a hybrid plan that would guarantee retirees a rate of return on investments instead of a defined pension benefit. The bill also says the state should pay its full contribution to the Kentucky Retirement Systems beginning next fiscal year. However, there is no funding mechanism for the additional payments to the pension system, thought to be more than $300 million beginning in July 2014.
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Senate Majority Leader Damon Thayer, R-Georgetown, the sponsor of SB 2, said the task force decided not to include the funding mechanism because there was no consensus on how to make the increased payments.
"We did not have the support to include a bond or a tax increase," Thayer said.
The bill directs the General Assembly to find the money in 2014, when the legislature tackles the two-year state budget.
House Speaker Greg Stumbo, D-Prestonsburg, said Wednesday that the funding issue should not wait until next year.
"I think it would be unwise to pass any pension bill that does not provide an adequate funding source," Stumbo said.
Stumbo said House leaders are considering a variety of options to fund the bill, but he declined to describe them.
Democrats in the House might have other problems with the bill as well, Stumbo said. He said some Democrats have questioned the wisdom of moving new employees to a hybrid plan.
Stumbo said many House members want to know how much it would cost to keep a defined benefit plan rather than move to a hybrid plan.