HAZARD – With a reported $33 billion in unfunded liability, pension reform promises to be the major issue during this session of the Kentucky General Assembly. It was also the topic of a town hall meeting in Hazard last week.
Perry County Judge-Executive Denny Ray Noble called the meeting at the Hal Rogers Forum in Hazard on Friday, where he told an audience of current and retired state workers if something isn’t done to shore up the Kentucky Retirement System (KRS), many state, county, and city employees may not have a retirement to look forward to.
“If we don’t do something, in my opinion, we’ve lost our retirement,” Noble said. “And then, what’s the future for our kids?”
Pension reform isn’t a new issue in Kentucky. A bi-partisan commission was formed this past summer to formulate recommendations on how state lawmakers can best address Kentucky’s retirement shortfall. Those recommendations make up Senate Bill 2, which was approved in the state Senate last week and is currently being considered in the House State Government Committee.
Senate Bill 2 would, if passed without amendments, reform the state’s pension system by first offering all new state employees a hybrid cash balance plan. Under the plan, all employees who begin participating in the KRS after July 1 would be guaranteed a 4 percent annual return on contributions. Cost-of-living increases would also be eliminated for those employees. Additionally, the state would be required to pay its full contribution to the retirement system beginning July 1, 2014. At present, the system has less than half the funds needed.
With fewer than 20 working days left in this session of the General Assembly, Rep. Fitz Steele predicted drastic cuts on the state level and a special session later this year. He added that the pension issue started well before he took office, but it’s one this legislature will need to fix now.
“There’s going to be drastic cuts because we have to put this money back into the retirement fund because you all have worked for it,” Steele told an audience Friday evening. “That’s your money. You paid for it, you’ve been taxed for it.”
Republican state Sen. Brandon Smith, the Senate majority whip, said the pension shortfall is the result of a legislature from years ago that failed to fully fund the KRS, and a system that guaranteed an investment growth rate that was stifled when the economy faltered.
Senate Bill 2, he added, simply adopts recommendations made by the bi-partisan commission put together this past summer, but it’s also the legislature’s only shot at fixing this problem during the current session.
The legislation is not perfect and he doesn’t like everything that’s currently in it, Smith said, though it will likely see some changes in the Democratically-controlled House before it comes back to the Senate for approval.
“I can promise you right now in this room, that (House Speaker) Greg Stumbo is over there making a lot of changes to it,” Smith said on Friday. “He’s going to tweak it, that’s the way the process works.”
Last week, Speaker Stumbo expressed concern that while Senate Bill 2 requires the KRS to be fully funded, it fails to detail a funding source. New sources, such as a tax hike on cigarettes or expanded gambling, could help shore up the pension shortfall, he added.
Rep. Steele said the House could take up the pension bill sometime this week. The General Assembly will adjourn its regular session on March 26.