The analysis, “Kentucky isn’t the only state with a pension crisis. Here’s how the others coped,” overstates Kentucky’s challenge in operating defined-benefit pension plans and understates the impact of moving new hires to defined-contribution plans.
Kentucky’s unfunded liability for state and local pensions is approximately $30 billion, but this is to be paid over 30 years, not in a lump sum. This equals 3.3 percent of Kentucky’s projected state and local revenues over 30 years, assuming no revenue growth, versus a national average of 4 percent.
Furthermore, spending of pension checks by retirees and investments by pension funds bolster local economies, creating more revenue than taxpayers contribute to pension funds.
Our research finds that closing defined-benefit plans and pushing new hires into defined-contribution plans inflicts economic damage as steady retirement income is replaced by assets that vary as markets shift. If Kentucky pursues unwise policies that diminish defined-benefit pensions, this cost could reach $13 billion, our research shows.
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There is a better way. Closing tax loopholes, establishing a pension stabilization fund and improving risk management are tools Kentucky can deploy. A recent study by Good Jobs First shows that Kentucky gives away as much in tax loopholes and economic development subsidies as it is required to pay into public pensions annually.
Hank H. Kim
National Conference on Public Employee Retirement Systems