The state’s pension systems administer benefits to more than 325,000 current and former public employees. Some estimates say the systems are facing a combined $30 billion unfunded liability.
“This issue affects every Kentuckian…It continues to eat away at our ability to deliver the services and policies that all Kentuckians expect from us,” Senate Majority Floor Leader Damon Thayer (R-Georgetown) said.
In an effort to pay down that debt, Senate Bill 2, sponsored by Thayer, would require the Commonwealth to contribute the full amount recommended by actuaries to the pension system each year beginning in fiscal year 2015. Currently, the state is scheduled to pay three-fifths of the actuarially required contribution (ARC) that year.
To provide immediate relief to government budgets, the measure would extend the pay-back period for the debt from 26 to 30 years.
Other provisions in the bill would prohibit public employees from being re-employed with the state for up to two years after retirement and would repeal annual cost-of-living adjustments provided to retirees. Thayer said the increase had been suspended during previous budgets and could still be reinstated in future budgets.
While the bill would not affect the Kentucky Teachers Retirement System and would not change benefits received by current and former state employees, it does propose a new hybrid cash balance plan for future public workers.
Different from the state’s current defined-benefit plan and a traditional 401(k), the shared-risk plan would guarantee new employees a four percent return on contributions. A quarter of returns over four percent would go to the state’s fund.
SB 2 mirrors the plan adopted by the Task Force on Kentucky Public Pensions in November. The 14-member task force, co-chaired by Thayer and comprised of members of both chambers, met with state and national pension funding experts during the interim.
The bill now goes to the House for consideration.
