Analysis of proposed pension reform at KTRS shouldn't "be surprising to anybody that understands how these proposals work," head of KCEP says

11/17/2017 03:06 PM

As the calendar draws closer to the end of the year, policymakers are still cobbling together a pension reform proposal ahead of a possible special session before lawmakers return to Frankfort in 2018 to write a two-year spending plan.

Last week, the Kentucky Teachers Retirement System released an actuarial report that showed the state would need to funnel an additional $4.4 billion into the pension system if the reform proposal is passed as written and that the system would be 71 percent funded with a $11 billion unfunded liability after 20 years.

Without the proposed reforms and full pension contributions, actuaries with Cavanaugh McDonald predict that KTRS would be 80 percent funded with a $9.6 billion unfunded liability in that timeframe.

Gov. Matt Bevin’s administration has asked for a re-evaluation by the actuaries, saying they should have looked at the 30-year impact of possible reforms and that they used faulty assumptions, but Kentucky Center for Economic Policy Executive Director Jason Bailey says the report’s findings shouldn’t “be surprising to anybody that understands how these proposals work.”

“There’ve been actuaries all throughout the country that have looked at this idea of closed defined-benefit plans and moving to defined-contribution plans and … some of the other changes that are in what is proposed, and they found very similar conclusions to what the actuary in Kentucky found,” Bailey said in an interview Friday. “It’s more expensive to pay off the unfunded liability in a closed plan, and that’s what the actuary found.”

Bailey has been among the critics of the plan to move new government workers into 401(k )-style plans and cut defined-benefit pension accruals at 27 years of service.

He said he would like to see a greater emphasis on revenue and how the state plans to pay down pension debt in pension reform talks.

“A lot of the low-hanging fruit, as far as the benefits themselves, is already gone,” Bailey said, referencing past pension reform efforts in 2008 and 2013. “So it’s not really a pension problem anymore. It’s more of a revenue problem. These liabilities are liabilities from the past where we underfunded those plans, and we need to find the revenue to pay them down over time while also affording the other things we need.”

Hear Bailey’s thoughts on pension reform efforts, actuarial analyses and the prospects of a special session in the interview below:


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