Legislative Update – Pensions 9/11/17

Frankfort, KY — Bringing about a flurry of facts and a storm of misconceptions, Kentucky’s pension crisis has become one of the most dominating news stories in recent months. One thing is for certain: if our state pensions are not addressed in the very near future, we will face huge cuts in state funding. Education, Medicaid, and other government services will likely be affected — a risk our state is not in a position to take.

So how did we get to this point? In the early 2000’s Kentucky’s pensions were in a healthy condition. While there was not one single cause for the pensions’ downhill slide, one major factor was erroneous actuarial assumptions made by past board members of these systems. Sadly, it seems past assumptions were often manipulated by the prior pension board members in efforts to minimize the “cost” of pensions to the state budget. Unreasonably high investment expectations were made and funding was based on inaccurate payroll numbers. The result was to provide a false sense of security and justify smaller-than-necessary contributions to the pension plans.

The General Assembly took steps toward reforming the Kentucky Employees Retirement Systems (KERS) and the County Employee Retirement System (CERS) in 2013 (with Senate Bill 2, which I sponsored), but the Kentucky Teachers Retirement System (KTRS) was not included in those measures and the problem continued to grow.

In 2016 the General Assembly made a commitment to address the issue. This started with a dedication of an additional $1.2 billion annually to help with the shortfalls in KERS and KTRS as well as establishing a permanent pension fund. We also hired a third party organization, the PFM Group, to investigate the state of our pension systems.

On Monday, August 28, the PFM Group gave its final presentation to the General Assembly’s Public Pension Oversight Board, offering its recommendations on how to best address the problem. I, along with my colleagues in the General Assembly and Governor Bevin, are reviewing PFM Group’s recommendations and will craft a plan that will be considered in a special session, hopefully later this fall.

What happens if we keep “kicking the can down the road”? The only path forward would be to cut funding in other areas of state government in order to make necessary pension obligations. Public education (K-12) would bear the brunt of the cuts, creating larger class sizes, fewer teachers, and a lower-quality education for our students. Higher education at our public universities would also feel the cuts and make college less affordable. Medicaid, public safety, and infrastructure would also suffer in this unfortunate scenario.

But there are ways to avoid that situation. There is a path forward that allows us to balance our legal and moral obligation to our retirees while reforming the broken systems. Our priority is ensuring our retirees have a secure retirement that will provide for them in the years to come without taking away from other priority state programs. Addressing this crisis will not be an easy task, but I will continue to work alongside my colleagues in the General Assembly to ensure we find a solution that provides for our retirees while being responsible stewards of taxpayer dollars.If you have any questions or comments about these issues or any other public policy issue, please call me toll-free at 1-800-372-7181 or email me at [email protected]  You can also review the Legislature’s work online at www.lrc.ky.gov.

 

Thank you,

 

Senator Damon Thayer