Legislative update: Pension reform, funding bills on way to becoming law

By Kentucky LRC News

March 26, 2013, 10:20 p.m. — Intent on reducing over $30 billion in unfunded obligations in the state’s public employee pension system, the Kentucky General Assembly voted tonight to change benefits offered for future employees served by the Kentucky Retirement Systems and pay down the pension system’s debt to the tune around $100 million a year.

SEN. DAMON THAYER

The pension system changes were approved with final passage of Senate Bill 2, which cleared the Senate on a 32-6 vote and the House on a 70-28 vote. SB 2, sponsored by Senate Majority Floor Leader Damon Thayer, R-Georgetown, will place future state and local government employees (except public school teachers, who are covered under a separate retirement system) as well as judges and state legislators in a hybrid “cash balance” plan as of Jan. 1, 2014, That plan is similar to a 401K, but with a guaranteed minimum 4 percent return. The bill also requires prefunding of any and all cost of living raises.

Most notably, the bill will require the state to pay its full contribution, or “ARC” (actuarially required contribution), to the pension system beginning in Feb. 2015. The ARC totals around $100 million per year which will be paid with revenue generated by House Bill 440, sponsored by House Speaker Pro Tempore Larry Clark, D-Okolona.

REP. LARRY CLARK

HB 440, which was given final approval by a vote of 82-17 in the House and a vote of 35-3 in the Senate, will generate $95.7 million in fiscal year 2015 and $99 million in 2016. That funding will come from a $10 reduction in the personal income tax credit, a trade-in credit for new cars, a cap on vendor compensation for sales tax collection, and enhanced revenue collection by the state Department of Revenue.

Thayer said during pension negotiations earlier in the day that SB 2 will save Kentucky taxpayers $10 billion over the next 20 years while spreading investment risk between employer and employee.

“It will avert a fiscal crisis that looms only four years ahead,” Thayer said.

Benefits for current employees and retirees served by the Kentucky Retirement Systems will not be affected by SB 2 because of an “inviolable contract” the state has with current employees that protects existing benefits, according to House Speaker Greg Stumbo.

“Unlike the folks in Washington, we can actually come to together and forge a comprehensive and responsible piece of legislation to a huge public policy problem” while protecting workers and retirees, Stumbo said.

Both SB 2 and HB 440 now go to the governor’s desk to be signed into law.

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