Public Pensions Task Force makes recommendations

Earlier this summer a Public Pensions Task Force began meeting to discuss possible solutions to the unfunded liability in the Kentucky retirement system. 

After several months of consideration and discussion with local and national experts, we approved an eight-point proposal outlining suggestions to put Kentucky’s public retirement system back on sound financial footing.
We looked at ways to pay down the pension debt, provide immediate relief to cash-strapped budgets and create a new pension system that is sustainable and secure.
At the top of our list of recommendations is for the state to begin paying more into the pension system.  Right now, the state is only paying a portion of the actuarially required contribution (ARC).  The longer we delay paying the full ARC, the more the unfunded liability will grow.  The task force proposal calls for a full ARC payment by 2015.
That will require some sacrifice and tough decisions, as more money will be needed up-front for the pension system, but it is a necessary step to alleviate the debt owed.
To provide some short-term relief, the proposal suggests resetting the amortization schedule for payment of the unfunded liability from 26 to 30 years.  It also recommends repealing the 1.5 percent cost-of-living adjustment included in the current plan.
We’ve heard from constituents and others about problems they see in the current pension system. The proposal seeks to address some of those issues, as well.
In an effort to prevent what some have called double or triple dipping, the plan recommends prohibiting public employees from returning to work for the state for up to two years after retirement.
It also seeks to alleviate burdens associated with “spiking pensions,” a term used to describe what happens when a public employee is given a significant pay increase after a promotion or other job change during the last five years before retirement.  The proposal suggests requiring the employer to pay the actuarial costs associated with the increase.
The proposed pension plan for new hires is called a hybrid cash balance plan.  It will guarantee employees at least a four percent return on their contribution.  We think it will be more beneficial to workers and tax payers.  According to experts from the Pew Center on the States, the cost of the plan is more predictable and the benefits are more portable than the current pension system.
The recommendations of the full proposal are planned to be pre-filed as a bill for consideration in the upcoming 2013 legislative session, set to convene on Jan. 8.  It is also likely that other recommendations may be considered in separate measures next year, as well.  Pension reform is a priority for many of us in the upcoming session.
As we continue to work on pension reform and other issues crucial to the well-being of the state, I am interested in knowing your thoughts and concerns.  You can reach my office in Frankfort at 502-564-8100, my home in Lebanon at 270-692-6945, or e-mail me at jimmy.higdon@lrc.ky.gov.