Kentucky needs a new plan to provide a secure retirement to its workers, lawmakers agreed Tuesday at the final meeting of the Kentucky Public Pension Task Force.
The task force approved 11-1 an eight-point proposal aimed at paying down pension debt and creating a new pension plan for future employees.
The proposal’s first recommendation is that the Commonwealth pay more into the pension system.
Currently, the state is paying only a portion of the actuarially required contribution (ARC). Legislation passed in 2008 increased the ARC payment incrementally over time. The proposal is calling for a full ARC payment by fiscal year 2015.
Each time the full ARC is not paid, additional unfunded liabilities and higher costs are incurred by the state, committee Co-chair Rep. Mike Cherry, D-Princeton, said.
To provide immediate short-term relief to city and county budgets, the proposal suggests resetting the amortization period for payment of the unfunded liability from 26 years to 30 years.
Other recommendations included in the proposal would repeal the current cost-of-living adjustments provided to retirees and would prohibit public employees from being reemployed with the state for up to two years after retirement.
Under the proposed plan, pension benefits for new hires would be calculated in a hybrid cash balance plan. New employees would be guaranteed a four percent annual return on contributions.
According to David Draine, Senior Researcher of public sector retirement systems with the Pew Center on the States, the hybrid cash balance plan is more predictable and sustainable than the current plan.
Overall, the proposal is a result of bipartisan compromise, Cherry said. “What we [ended] up with is… something we all can agree on,” he said.
Committee Co-chair Sen. Damon Thayer, R-Georgetown, said he and Cherry plan to pre-file a bill for the 2013 legislative session that includes the recommendations set forth in the task force’s final report.
“It really is one step along the way of what I hope will be significant, serious and substantive reforms that really affect all 4.3 million Kentuckians more than just about any legislation that we will consider in the next session of the General Assembly,” Thayer said.