Proposal to fix retirement system woes will make necessary changes

As has been widely reported, and I have written in this space multiple times, Kentucky is facing a serious issue with our woefully underfunded public pension systems. The structure of these systems is such that, if left unchanged, the state could legitimately see bankruptcy in the future.

Over the course of the past several months, I and a small group of legislative leaders have been meeting with Governor Bevin and executive level staff in an effort to craft a plan that would continue to adhere to the legal obligations we have to public employees, while also making changes to ensure the fiscal solvency of the retirement systems and strengthen them for years to come.

This past week, I stood with Governor Bevin and Senate President Robert Stivers as we unveiled the proposal which will be brought before the General Assembly in a soon-to-be called extraordinary session to deal with this subject. I believe this proposal, if enacted, will make the changes necessary, while holding our current and retired public employees, including teachers, as harmless as possible.

To begin with, the proposal would require the General Assembly to appropriate the full payment of the actuarially determined annual required contribution. By doing this, along with creating a new funding formula, every pension plan will see hundreds of millions more, making them healthier at a quicker rate.

For current employees, I know there has been some fear of the unknown and trepidation following the PFM report from late August. I want to assure you that this proposal does not include many of that report’s recommendations. In fact, if you are a current employee, there will be no increase to the full retirement age and your current defined benefits package will remain in place until you reach the promised level of unreduced pension benefit.

For those retired state employees and teachers, there will be no clawbacks or any reductions in your pension checks. Your healthcare benefits will be protected as well.

The bulk of the changes will be applied to future state employees and teachers. For those new hires, the system will change from that of defined benefits to one of defined contribution, which is the standard for the private sector already. We will ensure that the retirement plans for these new hires will provide comparable retirement benefits though, as we fully desire to recruit and retain the best employees possible.

Those employees in hazardous duty positions (police, firefighters, etc.), both current and future, will remain in the same system they are currently. However, this proposal will close loopholes to ensure payment of death benefits for the families of hazardous duty employees.

I, and my fellow legislators, do recognize that any changes to the pension systems may cause people to evaluate their personal financial situations. With that in mind, we do not want our employees making any uninformed or rash decisions. Therefore there will not be an emergency clause on this legislation, meaning it will not go into effect until July 1, 2018. This should provide everyone ample time and opportunity to understand the changes and fully evaluate the impact they will or will not have on their lives.

Finally, in my opinion it would not be fair for legislators to make changes to the pension systems affecting current and retired employees without it affecting ourselves as well. Therefore, the defined benefits plan for all legislators will be stopped and we will move into the same defined contribution plan as other state employees under the jurisdiction of the Kentucky Retirement Systems.

I can honestly say that during the course of my twenty-year legislative career, this has been the most trying and difficult issue to ever come before the General Assembly. It is an issue that has an effect on each and every Kentuckian, regardless of whether they participate in the pension systems, due to the burden it places on our state budget and the ramifications it has on the Commonwealth’s credit rating. While it will take decades to finally see full funding of the systems, I fully believe this proposal makes the structural changes necessary to put our state on solid fiscal ground as we move forward.

I anticipate Governor Bevin to call an extraordinary session of the Kentucky General Assembly in the upcoming weeks. In the meantime, I appreciate your continued thoughts and prayers as we face this issue head on and end the days of ignoring issues with the hopes they go away.

If you would like to stay up-to-date on all legislative action of interest to you during this session of the Kentucky General Assembly, you can visit www.lrc.ky.gov or call the LRC toll-free Bill Status Line at (866) 840-2835. As always, I welcome your thoughts and comments. You can send me a message either at Jeff.Hoover@lrc.ky.gov or by calling (800) 372-7181.