State think tank report highlights shortcomings of recent pension reform

STAFF REPORT

Monday, April 8, 2013, 9 p.m. — A pathway to pension reform released Monday, April 8, 2013, by the Bluegrass Institute, Kentucky’s free market think tank, highlights critical steps state lawmakers need to take to rescue the state workers’ retirement plans from future insolvency and put it on the road to recovery.

“Future Shock Solutions: 16 steps to treat Kentucky’s public pension ailment” stands in stark contrast to the few, and minor, steps taken during the just-completed session of the Kentucky General Assembly to address the public retirement systems’ $34 billion unfunded liability. To download a copy of the report click here.

Jim Waters, president of the Bluegrass Institute, will be a guest Tuesday to discuss the new report. Tune in from 11 to noon Tuesday on WBRT 1320 AM, 97.1 FM and streaming live on the web, www.NelsonCountyGazette.com and www.WBRTCountry.com.

Senate Bill 2, which passed during the closing days of this year’s legislative session and is being hailed by leaders of both parties as a great compromise that will significantly address Kentucky’s pension challenges, raises taxes, raids road funding and greatly decreases the amount of money the state pays retailers to serve as its tax collectors.

The Bluegrass Institute’s report contains 16 steps largely ignored by lawmakers:

• making the pension system transparent;
• moving state workers toward a defined contribution retirement plan that is more indicative of private-sector benefit packages, and;
• ridding Kentucky of the scourge of the corrupt part-time politicians’ pension system.

“What was not done on pension reform during this year’s legislative session is more significant than what legislators did do during this year’s legislative session,” said report author Lowell Reese, owner of Kentucky Roll Call, a public affairs publishing company in Frankfort, and a former state chamber of commerce executive.

The short report notes that any effective strategy toward pension reform should include:

• A diagnosis that confronts the truth that Kentucky’s public pension system is unsustainable in its current form and that its state workers’ fund – faces insolvency in a few years, which places the retirements of all state workers, as well as the standard of living for all Kentuckians, at risk.

• An understanding that state politicians have allowed the health of the pension system to deteriorate by passing legislation that continually padded and spiked pension benefits even as pension funding was dwindling.

• A specific set of free-market actions that can be taken to effectively address the overpromising of benefits that resulted in the overspending of taxpayer dollars.

By not addressing the system’s structural problems in order to limit spending, even the positive step taken by SB 2 to place future state workers in a hybrid cash plan will likely not create promised future significant savings, since the legislature did nothing to limit benefits of keep future legislators from using the pension plan to curry political favor with public employees.

“Kentucky’s public pension liability is a societal issue that threatens our standard of living by jeopardizing funding for essential government services. SB 2 was not drafted to address the pension systems’ serious problems,” Reese said. “Yet, political leaders from both parties are putting a spin on the bill, claiming it cured and saved the state retirement system. It did no such thing; it didn’t even slow down the hemorrhaging. But it gives politicians the political cover to claim they seriously addressed what is arguably the greatest threat to the commonwealth’s economic well-being.”

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