Kentucky Pension Reform Being Kept Under Wraps

Proposals not addressed at state budget meeting.

While all eyes are on Kentucky Gov. Matt Bevin and his pension reform plans, his Tuesday proposal for the 2018-20 state budget did not include them, the Courier Journal reports.

The bill, which has seen many setbacks over the past year, from regular session delays to a 2017 special legislative session that never materialized, was expected to be addressed alongside the budget. While a pension reform bill is being quietly written by the legislature and should soon be filed, the Bluegrass State currently faces a $41 billion shortfall.

While a budget Bevin proposed would fully fund pension plans under the current law with roughly $3.3 billion from the Kentucky General Fund until 2020, the Journal reported under a level dollar funding that would require nearly $400 million more in annual funding for the $19.8 billion Teacher’s Retirement System. While also not addressed at Tuesday’s meeting, the mortgage-like level dollar funding would have the state pay the same annual amount in order to pay off obligations over a 30-year period, with higher early payments in the beginning and lower payments in the end.

Pension plan contributions currently operate under a government payroll-based basis, linking payment increases with budget raises.

The plans most affected by the level dollar funding strategy would impact the teachers, primarily due to the Kentucky Retirement System lowering the assumed rate of return for its Kentucky Employees Retirement System hazardous pension plan, County Employees Retirement System hazardous and non-hazardous pension plans, and five insurance plans from 7.5% to 6.25%. The assumptions also halted payroll growth for state employees.

On the subject of level dollar funding, House Speaker David Osbourne was one of several Republicans on board with the changes, telling the Journal the House has, “made a complete commitment to level dollar funding.” In terms of whether the funding will cost more in the budget, he determined that it’s best for the actuarial report on the bill’s fiscal impact to adhere to that.

Should the bill phase-in level dollar funding for teachers, Sen. Chris McDaniel reportedly warned that the required boost-in funds would not start until the next state budget in 2021.

While level dollar funding is just one of many variables that will decide what type of pension reform Kentuckians will receive, the Journal quoted Osbourne as revealing a bill, “just as soon as we have something that we feel like is ready to be unveiled.”

By Chris Butera


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