Lawmakers could target cost of living adjustments to hold down pension expenses

08/14/2011 04:13 PM

Rep. Mike Cherry, the Democratic House state government committee chairman, opposes converting the Kentucky Retirement System into a 401(k)-style program for future employees but said the legislature could freeze cost of living adjustments for pensioners. (See the second video to hear what he said.)

All of this comes as the state’s unfunded liability for the retirement systems has swelled to more than $20 billion combined.

That was largely caused after 2003 when the legislature approved taking money out of the pension fund to plug into other programs. The pension fund was 100% funded less than a decade ago and is now less than 60 percent funded.

“We had been so used to that not being an area of concern because it was fully funded,” Cherry said. “I can remember people saying 80 percent is OK. And of course from where we are now, at roughly 58 percent, 80 percent looks pretty good.”

The question in politics is often how did we get here? Cherry said it’s not a simple answer, but a short answer is the state stopped meeting its pension obligations.

“A perfect storm in the negative context hit us,” Cherry said.

Investments by the state weren’t returning what had been projected. Plus, legislators didn’t estimate enough for increased health care costs and people living longer.

In 2008, the General Assembly approved a funding schedule aimed at gradually increasing the amount the state puts into the retirement system’s pension fund. But it will continue to take a bigger chunk out of the state budget every year.

“If we keep to that schedule, we have no problem,” Cherry said.

One of the ways Cherry said to get costs under control and to meet an agreed upon guideline that would put the pensions on a path to solvency would be to cut the cost of living adjustments in the pensions.

“It will be an issue. It will be a discussion point. I would be very open to a discussion of it,” Cherry said. “If you’ve looked around at what’s going on in the United States in the last few years, I think everybody will understand that’s a possibility.”

Cherry is opposed to a 401(k) type of retirement. He called it bad public policy. Watch the video to find out why:


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