FRANKFORT —
If it was easy, it would’ve already been done.
That might sum up the views of the legislative Task Force on pension reform after its second meeting and a second presentation by the PEW Center for the States.
David Draine, senior researcher for PEW, told the task force Tuesday that there are a limited number of ways the state can reduce its unfunded liability for its state pension funds: increase employee contributions; reduce or eliminate cost of living increases or COLAs; change how future benefits are earned by current employees; or a combination of all three.
Most of the lawmakers on the task force were interested in what changes are legally allowed under the state’s so-called “inviolable contract” which guarantees benefits to those already in the system. And if the state adopts a system of defined contributions by employees, like a 401(K) plan, rather than its current defined benefits plan, would the transition costs be prohibitive.
Drain said the latter problem isn’t insurmountable and shouldn’t deter lawmakers from making changes to the system. And he said the courts would have to decide the former question — as they have in other states, although those court decisions differ and have no legally binding effect on Kentucky or other states.
But the state can change benefits for future employees and the contract does not prohibit lawmakers from making changes to the COLA or health benefits. Some states, he said, have offered employees choices, among them a reduction in benefits or a reduction in workforce.
Kentucky operates multiple retirement systems: for state employees, county and city employees, teachers and the Kentucky State Police. The task force, which is to recommend changes by Dec. 7 for potential action by the 2013 General Assembly, will not address the teachers’ retirement system.
William Thielen, director of the Kentucky Retirement System which includes all the systems except teachers, told the committee the retirement system had gotten a reasonable rate of return on investments “over time.” He said the state employee system has $11.5 billion in unfunded liabilities and assets to meet only one-third of its liabilities.
But that is due to several factors, he said, including the failure of the legislature to fully fund annual contributions to the systems as well as losses in investments during the 2002 and 2008 recessions.
Combined, the three retirement systems have unfunded liabilities of about $19 billion and close to $30 billion when the teachers’ system is included.
Drain said if changes aren’t made the choices will be simple: significant increases in taxes or decreases in services.
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.
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