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Kentucky Lawmakers Move Lexington, State Pension Reform Bills

BRADENTON, Fla. - The Kentucky General Assembly this week began considering union-backed comprehensive police and fire pension reform measures for the city of Lexington.

An average of 76% of active and retired officers and firefighters approved the massive overhaul in late January.

Rep. Ruth Ann Palumbo, D-Lexington, filed House Bill 430 on Tuesday to reform Lexington’s 40-year-old police and fire pension system. The bill would reduce its $300 million unfunded liability by about 45%.

“This plan makes [the police and firefighters] pension solvent, and is a fiscally responsible answer to this crisis,” Palumbo said. A bipartisan group of seven other lawmakers is co-sponsoring the 30-page bill. It had been read twice in the House by Wednesday.

The measure includes lower annual cost-of-living adjustments, increased contributions from active and future employees, and a remodeled plan for new employees.

The city agreed to increase its payments to the Policemen’s and Firefighters’ Retirement Fund by $9 million a year, and commit to paying down the unfunded liability over 30 years – all of which is required in HB 430.

Though Lexington studied the underfunded pension problem for years, and issued $136 million of pension obligation bonds since 2009 to cover annual required contributions, city officials were asked to resolve the problem by legislative leaders who have oversight of the plan and any changes.

In mid-January, city officials and union representatives announced that they reached a compromise through consensus and “shared sacrifice.”

In addition to reduced benefits and increased funding commitments, the deal also eliminates the need for the city to issue $34 million of pension obligation bonds this year to cover the minimum required payment.

“This is a comprehensive, honest, and responsible way to put our police and fire pension system on an affordable, sustainable path while preserving a dignified retirement for our police officers and firefighters,” said Mayor Jim Gray.

Although it is not a “joyous” time for firefighters, “it is a time to protect our pension that firefighters and police officers have earned, and paid large sums of their own money in the fund to have a dignified retirement since we do not have Social Security like the rest of the general public,” said Capt. Chris Bartley, president of Local 526, International Association of Fire Fighters.

Bartley and Mike Sweeney, president of the Lexington Fraternal Order of Police, said the unions would actively support passage of the bill.

“I think this is a good plan … a good start,” said House Speaker Greg Stumbo, D-Prestonsburg. “I look forward to seeing this move forward and putting the pension system on firm financial ground.”

Lexington is the only city in Kentucky that has its own police and fire pension plan, as a result of the 1974 merger of Lexington and Fayette County. Because of the consolidation, the state retained control over the benefits that were offered, while the city has been required to fund them.

Kentucky lawmakers are also considering another bill aimed at easing the state’s own massive $30 billion unfunded pension liability  in the state police and employee retirement systems, and in the county hazardous employee retirement system.

The Senate passed SB 2 on Feb. 8, and it is now under review in the House.

The measure, sponsored by majority floor leader Sen. Damon Thayer, R-Georgetown, would require that Kentucky contribute the full actuarially required contribution to the pension systems annually starting in fiscal 2015. County contributors will be given longer to make payments for their employees.

Currently, the state is scheduled to pay three-fifths of the ARC in 2015. Previous years of underfunding have contributed to the $30 billion liability.

The bill would repeal annual cost-of-living adjustments for retirees, and would prohibit public employees from being employed with the state for up to two years after retirement.

The measure would not change benefits received by current and former state employees, though it does propose a new hybrid cash balance plan for future public workers who would be guaranteed a 4% return on contributions.

The bill does not affect the Kentucky Teachers Retirement System.

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