Politics & Government

Plan to fix Kentucky pension system calls for big spending and big changes

Damon Thayer
Damon Thayer

FRANKFORT — Kentucky must pay far more into its state pension system — starting with an extra $327 million in Fiscal Year 2015 — and trim retirement benefits for new and existing workers, a legislative task force agreed Tuesday.

The task force met throughout the year to discuss the $12 billion Kentucky Retirement Systems, which has less than half the money it needs to provide lifetime pensions and health coverage for state and local government employees.

The panel voted Tuesday for a package of reforms that will be introduced as bills in the 2013 General Assembly.

Most significant, the state's annual contribution to the pension fund, which recently has been only half the recommended sum, would jump to the full recommended sum in two years. Compared to the $505 million contribution due in the upcoming fiscal year, the bill would be $832 million in Fiscal Year 2015 and $1 billion in Fiscal Year 2020.

The state currently spends less than that — $938 million — on all of its state universities and community and technical colleges. Clearly, a huge part of the state budget will be redirected into the pension fund from 2015 onward, as retiring public workers take the lion's share, lawmakers said Tuesday.

"No, I'm not comfortable with it," said Rep. Mike Cherry, D-Princeton, co-chairman of the task force. "I don't know what to say. This is one of those situations where if you don't do anything, the problem is just going to get worse."

About 70 percent of the state's contribution into the Kentucky Retirement Systems comes from the state's General Fund, Cherry said. The rest is paid by dozens of "quasi-public employers" allowed to join KRS over the years, including a variety of non-profit and social-service agencies.

Cherry and Sen. Damon Thayer, R-Georgetown, the other co-chairman, said task force members could not agree on how to raise enough revenue or cut enough spending to provide the extra money. Gov. Steve Beshear and the full legislature will have to decide that, they said.

Meanwhile, groups representing public workers immediately protested Tuesday when they learned of concessions they would be asked to make.

A law requiring annual cost-of-living adjustments in pensions would be repealed. New workers would not get the traditional defined-benefits pension. Instead, they would be enrolled in a "hybrid cash balance" plan that guaranteed at least a 4 percent return on money they and their employer set aside over the years. And unlike current public workers, new workers would not have their retirement benefits protected by an "inviolable contract" to prevent future reductions.

"The General Assembly created the current crisis by consistently failing to provide the annual required contribution," said Jim Carroll, spokesman for a watchdog group called Kentucky Government Retirees. "This legislative neglect should not be a basis for creating two classes of employees — those whose retirement benefits are guaranteed and those whose benefits can be changed at the whim of the legislature."

Lawmakers said everyone must share the pain. Under the hybrid cash balance plan, new public workers would be responsible for saving enough for retirement, just as most private sector workers are, they said.

"What we're doing with this that we've never done before is that we're sharing the risk," Cherry said.

In private discussions recently, task force members rejected a proposal to pay down the pension system's unfunded liability with a $780 million state bond, Thayer said. The state already is too deep in debt, a situation the bond would have aggravated, he said. However, it's possible some lawmakers might revive the idea of a bond during the 2013 session, he added.

The task force voted 11-1 to approve the plan. The sole "no" vote came from Sen. Joey Pendleton, D-Hopkinsville, who said he opposed the repeal of cost-of-living adjustments for retirees.

Related stories from Lexington Herald Leader