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Pension Reform Offered in Kentucky State Senate

March 5, 2018

The Kentucky state Senate State and Local Government Committee is considering a bill to enroll new government employees in a hybrid “cash balance” pension program in which employee retirement benefits are accrued in individual retirement accounts.

The Kentucky state Senate State and Local Government Committee is considering a bill to enroll new government employees in a hybrid “cash balance” pension program in which employee retirement benefits are accrued in individual retirement accounts maintained by the government.

Senate Bill 1 (S.B.1), proposed in February, would fund the pension accounts through a combination of employee contributions and funds directly from local and state taxpayers.

Currently, Kentucky taxpayers are held liable for the full value of government employees’ promised pension benefits.

Liabilities of the state’s eight public pension plans, serving approximately 207,000 active government employees, exceed available funds. The state’s largest public pension plan, the Kentucky Employees Retirement System Non-Hazardous plan, has enough assets on hand to pay only 16 cents on each dollar of promised liabilities, according to a May 2017 report by PFM Consulting Group.

Setting a New Course

Kentucky state Sen. Joe Bowen (R-Owensboro), the bill’s sponsor, says S.B. 1 would put the state on the right financial track.

“It puts us on a path of paying the unfunded pension liabilities,” Bowen said. “It places all new hires in a hybrid cash-balance plan, which, of course, is a blend between a defined-benefit and a defined-contribution plan.”

Jim Waters, president of the Bluegrass Institute for Public Policy Solutions, says S.B. 1 is a compromise bill.

“This is a compromise from what the governor [Matt Bevin] originally proposed, which was putting all new employees and teachers, and those who had been in the system for more than 27 years, into a straight, defined-contribution, 401(k)-style plan,” Waters said. “This has some of the features of that. It limits the contributions that taxpayers will be required to make to a percentage, but it also still provides a defined benefit for workers and teachers.”

‘Overly Generous Benefits’

Kentucky’s pension crunch is not a result of underfunding, Waters says.

“When you hear ‘unfunded liability,’ that’s not because of a lack of proper amount of funding from the legislature, which is what the Left would have you believe,” Waters said. “This is a problem of overly generous benefits that were not properly prefunded. We’ve been managing debt on the back of taxpayers for years.”

Calls for More Reforms

Waters says Kentucky lawmakers must implement additional reforms to promote economic prosperity and responsible government spending.

“We have to grow our economy, grow our tax base, and we have to get our pension system under control so that we are not awarding arbitrary, unfunded benefits and then turning around and blaming the taxpayers for being stingy,” Waters said. “If we don’t fix this, it’s our future generations that are going to have a heavy price for this.”

Author
Nolan Ryan writes from Hillsdale, Michigan.
nryan1@hillsdale.edu

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