A newly formed legislative committee tasked with examining Kentucky’s pension problems will meet for the first time on Tuesday in hopes of solving the political impasse.
The bipartisan coalition, known as the Public Pension Working Group, is to determine pension reform suggestions to the General Assembly “up to March 30, and, if necessary, can meet monthly during the 2019 legislative interim through Dec. 30,” according to the legislature’s website. The team’s deadline for making its recommendations is Feb. 15, but it may extend that request through Dec. 1, as a pension overhaul may not occur in the year’s legislative session.
Pension reform is one of the most controversial topics in Kentucky going into 2019. Carrying a $40 billion-plus deficit, the state is badly underfunded due to poor contributions as well as its investment decisions during the 2008 financial crisis. At 41%, it is one of the worst-funded states in the country. Recent attempts to change the structure of the system to plug the hole have failed.
Last year, Gov. Matt Bevin tried to overhaul the pension system by shoving a pension bill into a sewage bill at the tail emd of the legislative session. It was passed the next day, beginning an almost immediate lawsuit from Attorney General Andy Beshear, who is now seeking to run against Bevin as governor. During 2018, the law that would have enrolled new Kentucky teachers in a 401(k)-style plan was struck down twice in both the high and low courts. Bevin called a special session in December, but that too was rejected by lawmakers.
“Last year, the intensity level, the rhetoric level got to such a fever pitch that I think it was impossible for anybody to hear over that,” GOP House Speaker David Osborne told the AP, adding the importance of this year’s pseudo-“reset button.”
The 2019 legislative session started last week. When asked about what needs to be done, Sen. Robin Webb said there were some “ideological differences on each side as to what the definition of ‘fix’ would be” as well as which areas of the pension system carry the most risk, how the plans are funded, and their future structures, according to WEKU News.
Alice Foggy Kerr, a Lexington senator, said the group’s top priority is to identify asset pools to study the unfunded liabilities of the plans.
The 14-member Pension Working Group was announced by Kentucky lawmakers on Friday. The team, which consists of GOP Senate President Robert Stivers and Minority Leader Morgan McGarvey, has 10 Republicans. The panelists are evenly split between senators and representatives, with two Democrats from each chamber. No members of the House Republican leadership team are part of the unit.
Both Stivers and Osborne want the group to propose a bill that gets passed before the 2019 session ends on March 29. However, Osborne noted that there is the possibility of waiting until the 2020 session for a reform.
Waiting that long may cause more harm than good. As new retirees begin to collect their benefits each year, the fund creeps closer to insolvency. While returns have been decent for the Kentucky funds, there is also the notion from investment professionals that we are very late in the cycle, and a lack of contributions from plan sponsors to help shore up the pension system combined with a downturn could spell disaster for the funded status and the fulfillment of its promises.
Neither the Kentucky legislature nor the Public Pensions Working Group were able to be reached for comment.