Sen. Chris McDaniel says passing pension bill a must to keep state from suffering a financial disaster

11/01/2017 03:40 PM

ERLANGER – One senator who has a keen interest in the pension bill draft is Senate Appropriations and Revenue chair Sen. Chris McDaniel, R-Taylor Mill, who has been talking about the states growing pension liability since he took office back in 2013.

The northern Kentucky Republican likes the current pension bill draft and emphasized that there is no longer any more time to kick the can down the road.

“Inaction is not an option any longer,” McDaniel said. “In the absence of passing a bill like this, no one can argue that we will be on the hook for at least another 750 million dollars in new pension money next year. We’re talking about 18 percent of the general commonwealth’s general fund budget will go to make pension payments and it simply unsustainable.”

McDaniel says that if no action is taken to address the pension issue, the Commonwealth of Kentucky could potentially bankrupt the state in a short period of time.

“One of two things will happen, pension checks will stop coming, or taxes will go up dramatically,” McDaniel said. “Those are your two options at this point. There is not enough spending to be cut in the commonwealth to get there without one of those two things happening.”

One piece of the bill which has upset state employees, especially public school teachers, is the fact that they will be required to contribute an additional three percent of their salary specifically for healthcare coverage.

Something that McDaniel said was way overdue in light of the increased healthcare payments made by other citizens in the commonwealth.

“The citizens of the commonwealth have seen their contribution go up 1200 percent, in terms of what we put in, over the last 15 years,” McDaniel said. “In that time, absent a small increase on the teacher’s side for their health insurance, there’s been no increase in employee contributions to the systems. So, the fact is this is a move which was overdue, it is pretty dramatic in terms of a one year step, but it’s something that has to be done.”

Critics to the plan have also questioned if all new state employees beginning in July 2018, go to a 401 (k) style plan, how will the pension system survive if no contributions from newly hired employees is going into the system?

“The way this is set up is we are going to transition to what is called a level dollar method,” McDaniel said. “We’re using very conservative assumptions, like no payroll growth, like we will only achieve a 5 percent rate of return on these investments, and that gives us a liability that can be equally divided over the next 30 years.”

McDaniel has been outspoken about the fact that he feels that legislators should not be entitled to a pension, something that he opted out of when he first came to Frankfort.

In 2005, the General Assembly passed legislation which allowed lawmakers to combine their time in the state legislature with their salary at other public jobs.

The pension draft bill would re-calculate those pensions so they would be based solely on the lawmakers’ legislative pay, which could result in a big pay cut for some lawmakers.

It also stops defined benefit plans for all legislators, moving them into the same plan as other state employees under the jurisdiction of the KRS Board.

“We treat legislators equal to, or more harshly than any other group of employees,” McDaniel said. “That’s something that I’ve advocated for, and will continue to advocate for, and we wrote it into this bill.”

Some Democrats have talked about how Republicans will pay at the polls in 2018 over the pension reform plan, but McDaniel believes that vast majority of Kentuckians understand and agree with the reform plan to put the state on more solid financial footing, while still taking care of employees and retirees.

Even though Gov. Matt Bevin has stated that he has enough votes in the House to get the pension reform bill passed, McDaniel says that he really isn’t sure what the situation is in that chamber.

In deciding how to vote on the issue, McDaniel hopes that lawmakers look closely at the possibilities if it is not passed.

“I cannot be emphatic enough, that in the absence of us taking these actions, these systems will reach insolvency,” McDaniel said.

Gov. Bevin has given no indication as to when a special session will be called.


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