State Panel Calls for No Cuts in Pensions
Paul Glasser, Frankfort State Journal
A set of almost 30 recommendations related to the unfunded liability of the state retirement systems will now go to Gov. Steve Beshear and the General Assembly.
Not among the recommendations are any plans to cut retirement benefits for future state employees.
The blue ribbon commission on state retirement, a 24-member panel appointed by Gov. Ernie Fletcher to study the issue, approved on Tuesday a list of recommendations to help reinforce the retirement funds.
"A lot of these solutions were dealing with the pension plan and the problem really isn't with the pension plan," said Charles Wells, executive director of the Kentucky Association of State Employees.
"The problem is with health care. Making sometimes draconian cuts to pension benefits doesn't solve the problem."
Bill Hanes, executive director of the Kentucky Retirement Systems, said he was skeptical about the commission when it first convened in April. Now, he said he's optimistic and believes the commission produced some good recommendations.
However, both Wells and Hanes said there's still a lot of work to do. The commission's report and recommendations will be finalized, printed and delivered to Beshear by Jan. 1. Wells says he hopes lawmakers will benefit from the discussions and analysis conducted by the commission.
"We're going to dig in our heels, roll up our sleeves, and work with this new administration and the legislature," Wells said.
The list of recommendations did include plans to create a pre-funded cost-of-living increase set at 1.5 percent.
Hanes said that will help reduce the growth in the unfunded pension and health care liability, which totals more than $28 billion for Kentucky Retirement Systems, Kentucky Teacher's Retirement Systems, the State Police Retirement System and the County Employee's Retirement System.
Other recommendations include issuing between $1 billion and $1.5 billion in bonds to infuse the retirement systems with cash. The money would be invested and could earn returns above the interest rate on the bonds, but commission member Shawn Ridley expressed concerns about the plan.
"I think the risks are much greater than the benefits," he said.
If the market suffers another downturn, it's possible the investment returns could fall short of the interest payments on the bonds.
The recommendation was approved with several amendments, which included a caveat that the bonds first be used to repay the Kentucky Teacher's Retirement System. The legislature recently borrowed $198 million from the teachers pension fund to pay for the increasing cost of providing health care to retirees.
After the funds are repaid, the money would be used to help phase in the full actuarially required pension contributions over a period of 10 years or less.
Other recommendations included plans to conduct an investment review; create a series of low, medium and high coverage health-care plans for state employees; add a local government representative to the KRS board; require employees with high-cost conditions to participate in disease management plans; and institute a surcharge for spouses of state employees who elect to participate in the state health insurance plan but are eligible to enroll in another program.
Some controversial proposals were not included in the approved recommendations, including a plan to create a hybrid defined benefit/defined contribution pension system.
Personnel Secretary and Commission Chairman Brian Crall said the topic had not been vetted or analyzed by the commission. The hybrid plan was part of a plan proposed in the Senate during the 2007 legislative session. Although it did not receive official approval from the blue ribbon commission it would still be contained in the discussions and information forwarded to Beshear and lawmakers