BRADENTON, Fla. - A Kentucky legislative task force is in the final stretch of considering major restructuring options for the state’s pension plans, and dealing with an unfunded liability of more than $30 billion.
Potential reform measures, some that involve issuing up to $780 million of pension bonds, have been proposed by the Pew Center on the States, which volunteered to assist the task force in examining options for the state’s six traditional defined-benefit pension plans for existing and future employees and retirees.
Although Kentucky instituted some reform measures in 2008, the state failed to fully fund its annual required contribution.
Not fully funding the ARC, combined with the recession’s effects on investment returns and other factors, helped push the unfunded liability up to nearly $33 billion.
“While it is important for the task force to consider how to offer a sustainable benefit going forward, the other challenge you face is how to deal with the existing unfunded liabilities facing the state,” David Draine, a senior Pew researcher, told the task force Monday.
Two reform packages suggested by Pew suggested varying degrees of increasing the state’s ARC until full funding is reached, increasing employee contributions, taxing some earned retirement benefits, and increasing employee contributions for other post-employment benefits. Suggestions include issuing bonds to help fund a portion of the liability.
A third package proposed by Pew contained many of the same features except for issuing bonds. It also would require the state to make contributions to fully fund its past and present ARC to the system more quickly than the other two.
“The state must find a way to sustainably and affordably close the existing funding gap, find a way to ensure that the pension promises made by the state are not going to expose taxpayers to more risk than the state can handle, and ensure that the retirement benefits being offered are effective at recruiting and retaining the talented public sector workforce that Kentucky needs,” Draine said.
William Thielen, executive director of Kentucky Retirement Systems, said the agency’s actuaries would analyze the proposals suggested by Pew and provide feedback.
There are tough decisions to make regarding the creation of a plan for new employees, whether to tax pension income, and closing the funding gap with pension bonds, said task force co-chairman Sen. Damon Thayer, R-Georgetown.
Thayer said he was “not enthused” about issuing pension bonds or taxing pension income.
Rep. Mike Cherry, D-Princeton, and Thayer plan to poll task force members in the weeks ahead to determine issues they can agree on and those that need further discussion.
The task force’s next meeting is Nov. 20. Its report is due to the General Assembly by Dec. 7. Lawmakers begin meeting in regular session Jan. 8.
“We’re tasked with coming up with a solution to saving [the retirement system] for retirees and current employees, and designating a new system for new employees,” Thayer said. “We’ve also got to remember the taxpayers who fund public pensions, many of whom haven’t had raises in a long time either.”
Thayer also said that some taxpayers have their own job-related problems and many have seen their own healthcare costs rise while some private employers have stopped making contributions to 401(k) plans.
“Hopefully, our task force recommendations won’t go the way so many others have gone,” Thayer said, referring to those that have been shelved and not considered.