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Pension Reform - the knotty problem that never seems to go away

In December 2007, we published an article by Paul Glasser for the Frankfort State Journal. State Panel Calls for No Cuts in Pensions It was our first story on Kentucky's pension system. It would not be the last. The Kentucky retirement system has been on the legislative docket for repair since black lung exited as the number one budget breaker of Kentucky's budget.

The 24 member blue ribbon commission appointed by Governor Ernie Fletcher in April 2007 presented 30 recommendations to Governor Elect Steve Beshear.

Among the recommendations:

  • Create a pre-funded cost-of-living increase set at 1.5%
  • Issue between $1 billion and $1.5 billion in bonds to infuse the system with cash.
  • Repay Kentucky Teacher's Retirement System the $198 million dollars borrowed by the legislature to pay increasing costs of health costs for all retirees.
  • Conduct an investment review
  • Create a series of low, medium, high coverage health care plans for state employees
  • Require employees with high cost conditions to participate in disease management plans
  • Institute a surcharge for certain spouses of state employees

What the commission didn't recommend was creating a hybrid defined benefit/defined contribution pension system. That idea was floated in the Kentucky Senate but not analyzed by the commission.

There were concerns. Commission member Shawn Ridley wasn't sold on purchasing bonds with the expectation that return on investments would support the program. "I think the risks are much greater than the benefits," he said.

Ridley turned out to be prophetically right when the market and a good deal of the American economy collapsed in early 2008.

Other critics pointed to solutions not matching what they saw as the real problem- health care.

Charles Wells, then executive director of the Kentucky Association of State Employees said at the time "A lot of these solutions were dealing with the pension plan and the problem really isn't with the pension plan. The problem is with health care. Making sometimes draconian cuts to pension benefits doesn't solve the problem."

The Legislature in 2008 made a stab at fixing the pension's shortfalls, but "the 2008 pension reform legislation was supposed to remedy the system's gaping funding deficiency, but only after a long ramp-up; the state was not required to make full payments until 2024." Pew Charitable Trust study.

What is now called The Great Recession of 2007-2008 left Kentucky struggling to pay its day to day bills. Real comprehensive reform had to wait.

In 2013, Pew Charitable Trusts lauded Kentucky for addressing the pension issue in an open transparent bipartisan way.

Kentucky's Successful Public Pension Reform (Pew Trusts Sept 27, 2013)

And yet, here we are again.

Governor Bevin's attempt to reform the state pension system failed to pass in the full session of the General Assembly despite the GOP having control of both houses of the Legislature in 2018. The bill that morphed from a sewer bill to pension reform almost overnight failed a review by Kentucky's high court. Not because the Court made it to the merits of the bill, but because the General Assembly failed to pass the bill by its own rules.

Then there was the up and down and out special session of the summer of 2018. The bill presented remained unread by everyone, including its sponsor and Kentucky's governor.

It's January 2019 and time for the short session of 2019. After this week, legislators go home for three weeks. Governor Bevin is off to India.

There is sure to be another effort to present a pension reform bill that can pass before elected officials have to face voters again. Governor Bevin will go first in 2019. Legislators get a bye until 2020.

The chance of another "open, transparent, bipartisan" solution to Kentucky's pension woes seems as far away as 2007.


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