The Kentucky Senate is out with its plan for government worker pension reform. Stephenie Steitzer reports:
– Creates a mandatory “annuity savings plan” for new hires that puts 1 percent of their contribution into that plan and retains 4 percent of their contribution for the defined benefit. Workers currently contribute 5 percent to the defined benefit.
– Eliminates the automatic COLA for new hires and current workers who retire after 2018.
– Applies a “rule of 87″ instead of the governor’s proposed “rule of 85.” That means retirees would have to have an age and combined years of service that equal 87.
– Increases funding to the retirement systems in the next two years and starts a 10-year phase in to eventually bring the plans to full funding.
– Eliminates the inviolable contract provision for new hires, allowing the state to alter benefits down the road.
– Puts new legislators and judges in the Kentucky Employee Retirement System, instead of the more generous Legislator’s Retirement Plan and Judicial Retirement Plan.
– Requires “double-dippers” — workers who retire and then are rehired in government — to take a 12-month break before returning to service and makes them ineligible to draw a second pension. Currently a six-month break is required. The governor’s plan calls for a one-month break with no second pension.
– Makes no changes to teachers’ retirement, beyond what the governor’s proposal called for.
David Adams at the Bluegrass Institute revives a portion of Kentucky’s constitution that lawmakers would rather forget.
Don’t yawn when you read “blue ribbon panel.” This one might have something relevant to say. Stephenie Steitzer has the scoop:
The report includes a fairly bold recommendation to only give state workers cost-of-living adjustments when the state has the money to pay for it and calls for borrowing money to start chipping away at the state’s $18 billion pension shortfall.
Earlier this year, you might recall, the Senate passed a bill that called for borrowing $800 million, but the House took a pass because it wanted more study of the issue.
The report does not include, however, the Senate’s proposal of moving future state workers into a retirement plan that resembles the 401(K) in the private sector.
And, the commission went soft on changing benefits for future hires, saying the legislature should “study strategies” rather than directing it to make specific changes.
Then again, they may have simply punted on the source of Kentucky’s pension problems.
A state commission is researching ways to “fix” Kentucky’s unfunded state employee pension mandate. Here’s the bitter medicine that state employees must take in order to help get this problem under control:
Two of the more controversial proposals include reducing the cost-of-living adjustment and increasing the age or years of service before retirees qualify for full benefits.
Even more “controversial” was Sen. David Williams’ plan to switch the defined benefit pension program over to a defined contribution program that would work like a 401 k:
The proposal has not emerged as a recommendation for the commission’s final report, Crall said.
Commission members who represent government and employees say the concept would not solve the real problem with the pension systems — skyrocketing health-care costs.
“I hope most members now understand it’s a dumb idea,” said Bill Hanes, retired executive director of Kentucky Retirement Systems and a commission member.
Guess Hanes doesn’t realize that most private companies offer their employees 401 k retirement plans. People can actually accumulate savings by investing in the stock market. Amazing!
Only time will tell if the Kentucky legislature will actually take any action to tweak the KY pension system. State employees and teachers make up a large part of the voting population and most politicians would rather not rock their boat. I’m not holding my breath.
From the Kentucky League of Cities:
LEXINGTON, KY- “Our number one priority for cities is reducing the cost of retirement,” said KLC Executive Director/CEO Sylvia L. Lovely.
The Kentucky Retirement Systems Board of Trustees voted Thursday, November 15 to set the rates effective July 1, 2008 at 15.58 percent for non-hazardous workers and at 31.99 percent for hazardous workers. KLC officials contend much more must be done in order to provide a real solution to the issue.
“After several years of skyrocketing rates it’s nice to know that cities will get a bit of relief next year…but we need to be mindful of the fact that this is a band aid and not a cure. The drop in rates next year will just amount to a pause before they start going back up again the following year. Then they will continue increasing at a reduced rate, but a relentless uphill climb nonetheless,” said Lovely.
The rates are lower than the current contribution levels of 16.17 percent for non-hazardous and 33.87 percent for hazardous. According to the KRS actuary the rates for next year will drop because healthcare inflation, the primary cost-driver for retirement benefits, has leveled off after several years of sharp increases. KRS says rate increases will continue in FY 2010 but at a more modest rate than the last three years.
Lovely said the onetime bit of good news will not end the cash flow crisis that is crippling our cities and creating some cutbacks in personnel and services. She said it underscores the importance of ongoing work with the Governor’s Blue Ribbon Commission on Public Employees Retirement Systems and the incoming Beshear administration to identify changes that will bring significant cost cuts and benefit sustainability.
“As the only member of the Governor’s task force representing city government management and employee groups, I pledge a renewed effort to be a part of a real solution that features good employee benefits at an affordable price,” she said.
The newly announced KRS employer contribution rates and their impact will be the primary topic of discussion at a meeting of the Legislature’s Interim Joint Committee on State Government Tuesday, November 20 at 1:00 p.m. EDT in room 154 of the Capitol Annex in Frankfort.
