House Democrat and Senate Republican say "crushing" KY pension system must be reformed

12/06/2011 07:22 AM

Mounting pressure on the state budget means that 2012 or 2013 at the latest is the right time to revamp the state’s public employee retirement system, the House Democratic budget chairman and the Senate Republican state government chairman said.

“Yeah, I do. I think it’s time to consider pension reform, whether it’s going to a 401(k),” said Rep. Rick Rand, the House Democratic budget chairman from Bedford (4:45 of the first video).

Rand said the problem with moving to a defined contribution, or 401(k)-style approach for future hires, is that it will require money upfront to match those new employees retirement money — at the same time the state will have to pay out pension checks for current retirees.

“That is a long term fix,” he said. “I would like to see us, if not this session, certainly over the summer really study the issue, bring state employees and all the players to create an atmosphere to really get a handle on this. It’s really crushing for us.

The state is obligated to maintain certain retirement benefits for those drawing pension checks and current state employees and that includes health insurance. But Rand said he doesn’t expect lawmakers will have to dramatically scale those benefits back or eliminate the health insurance for future workers when they retire.

“I don’t think we’re there yet,” Rand said (3:00).

Both Rand and sate Sen. Damon Thayer, R-Georgetown, said they would support a bill proposed by Sen. Jimmy Higdon, R-Lebanon that would move future lawmakers into a 401(k)-style system.

Thayer has pushed for that type of change for all state employees for several sessions. At the heart of the problem is that more employees of quasi-governmental organizations have been allowed to join the retirement system at the same time lawmakers scaled back state funding. That has resulted in a $30 billion unfunded liability.

Thayer said a change to a 401(k)-style system would be costly initially but would stabilize the system over the next two decades.

“On the front-end, the new plan would be more expensive. But as time goes on … you’re adding no new employees to the defined benefit unfunded liability, it would level out,” Thayer said (2:30). “Our non-partisan budget analysts, predicts that in 20-23 years, we would eliminate the unfunded liability.”

He said it would require “tough budget decisions … and I would advocate this be one of them.”

(Correction: An earlier edition of this article incorrectly stated that the Kentucky isn’t obligated to provide health insurance benefits for state employees. It is the Kentucky Teachers Retirement System that isn’t explicitly required by law to provide insurance for the retirees it serves).


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