Kentucky Business Leaders Urge for Reform to Nix Public DB Plans

General Assembly, pension advocacy group, Democratic Party publicly respond via social media, local radio.

Pushing for a radical shift for defined benefit plans to help Kentucky’s staggering pension system, a group of the state’s top business leaders and Republican activists sent a Friday warning to the General Assembly.

Citing “misinformation” and a “false narrative” that Gov. Matt Bevin’s controversial proposal would harm the benefits of public employee, the 19-member group urged that the long-delayed pension reform bill move future employees from the system’s current defined benefit structure to a 401(k)-style plan.

The group, whose members include anti-tax activist Grover Norquist; Mac Brown, state chairman of the Kentucky Republican Party and retired vice chairman of Brown-Forman Corp.; Larry Cox, retired state director for Republican US Sen. Mitch McConnell; Bill Samuels Jr., chairman emeritus of Makers Mark; Jim Stuckert, former chairman and chief executive of investment firm Hilliard Lyons; Terry Forcht, banking and nursing home magnate; Ed Glasscock, chairman emeritus of Frost Brown Todd; and Ann Wells, chairwoman and co-chief executive of Commonwealth Bank & Trust; argues that the current system actually harms the taxpayers and businesses.

“Under the existing system, Kentucky taxpayers and businesses are forced to shoulder the entire burden of risk. Pension reform that fails to change the structure of the pension system is a disservice to the people of Kentucky,” the letter read. “Pension reform must protect the taxpayers of Kentucky, which can only be done by embracing the same structural reforms that were adopted by the private sector decades ago, moving all future employees from a defined benefits system to a defined contribution system.”

Upon receiving the letter, members of the General Assembly were not amused.  State Sen. Robin Webb, D-Grayson, took to Facebook to voice her displeasure, going so far as to post a copy of the letter.

“I received this email at 2:11 pm today demanding that we make ‘structural reforms’ to the system and move to a 401(k)-like plan that is costly in transition and unsustainable with existing and anticipated obligations,” Webb said in a Facebook post. “I would welcome their testimony at a hearing on the subject. Further, it continues to attempt to pit taxpayers who aren’t teachers and public employees, who also pay taxes, against public employees and teachers when I would guess most, if not all, have received a benefit from both by offering protection to educating them, their children and their workforce and their children. “

Jim Carroll, president of the pension advocacy group Kentucky Government Retirees (KGR) sent a response to legislators Saturday, taking a page out of Webb’s book and also reposting it on social media. In addition to stating that another structural change would be “pointless and counterproductive,” the letter also addressed previous reforms made to the Kentucky Retirement System (KRS) over the past decade that the signees of the original letter did not address.

 “As both taxpayers and stakeholders in Kentucky Retirement Systems, we feel compelled to respond to an email message that you recently received advocating changes for Kentucky Retirement Systems pension plans. We find it remarkable that the message made no acknowledgment of the profound changes already made to KRS over the past decade. Within the confines of an email message, I won’t provide an exhaustive list of measures to save costs and reduce employer risk.” 

Some of the examples KGR mentioned were the reduction of health insurance subsidies in 2003, the 2008 establishment of a second benefit tier, the 2012 elimination of cost-of-living adjustments (COLA) and a subsidy for dependent insurance coverage for non-hazardous employees, and a drastic reform from Senate Bill 2 in 2013.

“What is left to ‘reform’ for KRS?” Carroll wrote.

“Moving to a defined contribution plan incurs substantial new costs as the mature DB plan is eventually closed. The existing plan will be choked off from new contributors and actuaries recommend that the assumed investment rates be lowered to preserve assets for the remaining and final retirees,” the letter read. “What does this mean for KRS? Frankly, we can’t quantify the effect because the KRS actuarial analysis for the original pension bill is being suppressed. We do know that the teacher retirement actuaries identified new costs in the billions as a result of closing the DB plan.”

Kentucky Democratic Party Spokesman Brad Bowman also voiced the party’s opinion on the matter in an interview with WKU Public Radio.

“There’s been amicable, meaningful conversation from constituents all across Kentucky about what needs to happen with pension reform, but the Republican majority has chosen to not pay attention to that,” Bowman told the station.

Kentucky is one of the worst-funded states in the country, facing more than $40 billion in unfunded public pension liabilities. Last year, Bevin promised a “special session” in which lawmakers would work together to come up with a pension reform suited to sustainably fund the system. With the current legislative session nearly halfway over, there’s still no reform in sight, although lawmakers have been expecting to see one shortly. Under the state constitution, the session, now in its 28th day as of Monday, cannot be held longer than 60 days.

 “Phase II of the attack has begun at the near halfway point of our session,” said Webb.

 Just last week, the office of Attorney General Andy Beshear issued a ruling ordering Bevin to release an actuarial analysis that would reveal how much the governor’s pension proposal would cost. According to the ruling, Bevin had broken the public access laws when he refused to release the analysis in November after a separate analysis was released without his permission. In the analysis, the firm estimated that Bevin’s proposal would cost the state $4.4 billion more over 20 years after comparing the governor’s reform to the continuation of the current pension system with full funding.

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