Beshear says he's open to pension reforms; would consider hybrid pension-401(k) plans
08/16/2012 05:31 PM
After maintaining for months that 2008 pension reforms did enough to shore up the system, Gov. Steve Beshear said Thursday he is open to more changes, including potentially a hybrid retirement set-up for future employees.
A legislative task force has begun looking at ways to bolster the system as it faces a collective unfunded liability of nearly $30 billion for the retirement funds that cover state and county workers and teachers.
“I’m interested to see what they come up with, and we’re going to be following that along,” he said.
Beshear still said reforms from a special session in 2008 reduced the urgency of further reforms.
Since 2003, the last three governors and the state legislature have under-funded the pension program in order to free up millions of dollars to spend in other parts of the budget. In 2008, Gov. Steve Beshear and the legislature worked out a payment schedule to gradually bump up the state’s level of contributions into the system between 2010 and 2025.
The main pension fund, the Kentucky Retirement System, covers more than 337,000 former and current state workers.
Fixing that unfunded liability quickly won’t be politically easy.
The Pew Research Center, a non-partisan “fact tank” that provides information and analysis, recommended to the pension task force several options: raising taxes, cutting services and programs, asking employees to contribute more, and reducing benefits or a mix of all or some of the suggestions.
Beshear said increasing taxes to pay into the pension system would be unpopular among voters. And he said the state has already cut $1.3 billion dollars from programs making further program cuts unlikely.
“I think there may be other things we can do in addition to what we did in 2008 that maybe will speed up that process a little bit,” Beshear said.
The Governor expressed interest in hybrid pension plans for future state hires as an option to reform the current system.
One suggested hybrid plan — first pushed by the Kentucky League of Cities — would combine a 401(k)-like plan with pensions. Some money for each employee would go toward invested accounts while the rest would go into the pension fund.
A traditional 401(k) would likely not work for Kentucky Beshear said due to the high start up costs and the dangers of having employees make their own investments.
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