Higdon addresses pension reform concerns on WBRT’s ‘Bradford & Brooks’
By JIM BROOKS
Nelson County Gazette / WBRT Radio
Thursday, Sept. 21, 2017 — The state’s pension crisis was the topic of discussion on WBRT’s “Bradford & Brooks” Wednesday, with state Sen. Jimmy Higdon as the show’s guest.
SEN. JIMMY HIGDON
Fresh from a town hall meeting Tuesday night with 50th District Rep. Chad McCoy, Higdon said he received a lot of good input regarding the pension issue and concerns from pension participants.
While the General Assembly’s special session on pension reform hasn’t been announced, Higdon told the WBRT audience that he knows the options that he will not support to address the crisis.
NO EMERGENCY CLAUSE. For starters, Higdon said he would not support pension-related legislation having an emergency clause that would allow it to become law immediately after it is signed by the governor.
Higdon said pension participants want time to evaluate the changes the General Assembly may make, and he said it was only fair to give those eligible to retire time to decide if they wish to do so. At the town hall meeting, attendees supported having any pension-related legislation delayed by 90 days or more before it is enacted.
Higdon said he has lobbied to tie the date of any new pension legislation to the fiscal year, since state government, local governments, and school districts’ fiscal year ends on June 30 and starts on July 1.
WORK UNTIL AGE 65? Higdon also made it clear to listeners he would not support a recommendation to require employees to work until age 65. That change was one of the many presented by PFM Consulting Group in its report to the Kentucky General Assembly.
KEEP THE COLAS. Higdon said he would not support any action that would “claw back” the cost of living adjustments (COLAs) retirees have received in the past.
MULTIPLE RETIREMENT PLANS. The Kentucky Retirement System includes several different retirement systems, and the one that’s been most discussed lately is the CERS, the County Employee Retirement System, which includes all city and county employees, and school district classified employees.
Agencies that participate in the CERS pension system were advised recently of revised financial assumptions that mean participants will be required to substantially increase their required contribution for the fiscal 2019.
The CERS is funded by its participants, it doesn’t depend on contributions by state government, Higdon explained. State law requires participating agencies to make the full actuarially determined contribution — which is why the participants have been advised to prepare to increase their 2019 contribution.
“When you adjust (the assumptions), you drive the contribution rate up for cities, counties and school boards,” he said.
Higdon said part of the reason for the CERS’ unfunded liability is the inaccurate assumptions in regard to investment growth and employee payroll growth. CERS is currently 58 percent funded, though state law requires participants to make the full actuarially determined contribution.
“If they’ve been making the full contribution and they’re only 58 percent funded, we’ve got a problem,” he said. “We’ve got a leaky bucket there somewhere.”
“Twenty years ago, CERS was funded at 160 percent. Today its 58 percent,” Higdon said. “In 20 years, its lost 100 percent of its funding.”
Higdon said about 35 percent of the unfunded part of CERS is due to inaccurate assumptions on investments and payroll growth.
Despite its unfunded liability, CERS is still one of the best funded Kentucky retirement plans. Only the state legislators’ pension plan is better funded.
Higdon said Tuesday night’s Town Hall meeting went well, and a lot of concerns were voiced.
“There’s still a lot of unknowns, but we addressed a lot of the big concerns,” he said.
Reforming the state’s pension is a crisis point now, and Higdon called it “a line-in-the-sand event.”
“We’ve got to work on these pensions. They have to be funded, the loopholes have to be closed because they aren’t sustainable.
“Right now, if we don’t make changes, we’re leaving this bill to our grandchildren and great-grandchildren.”
Higdon said one of the solutions to some pension programs may be to enter all new employees into a defined contribution plan, which is similar to a 401(k) plan. This type of plan would eliminate risk for the state’s taxpayers.
If such a plan is considered, those who participate in the current pension plans would continue to contribute to those plans. Higdon said the state would be required to make its full actuarial contribution to the pension plans to make sure they were adequately funded.
“The money will be there for the retirees until the last person in each retirement system is no longer with us,” he said. “That’s the only way we stop digging this hole and take the taxpayers off the hook for the unfunded liability.”
Kentucky teachers don’t pay into Social Security, so the pension system and its future is critically important to existing teachers. Higdon said he wouldn’t support moving the Kentucky teacher retirement system to a 401(k)-type of plan without the state’s guarantee of fully funding the existing pension system. He also supports leaving teachers with their sick days the way they are now.
Higdon said a special session may come as early as November, with proposed legislation out for review within a few weeks.
Higdon invited WBRT listeners to call him at home if they have questions or concerns regarding the upcoming special session or concerns about the state pension plans. Higdon’s phone number is (270) 692-6945.
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