By Lorie Hailey
FRANKFORT, Ky. (Feb. 14, 2013) — The Kentucky Chamber of Commerce is encouraging its members and all Kentucky businesses to tell legislators that pension reform is crucial.
The Chamber’s top priority for 2013 is to ensure that comprehensive pension reform is passed reform during the regular session of the Kentucky General Assembly.
With more than $30 billion in unfunded liabilities, Kentucky’s public pension system is nearly bankrupt, the Chamber said Tuesday in a post on its website headlined “Action Alert.” Every day that passes without a fix is putting the state and local governments at greater financial risk, the organization said.
Failing to act during this legislative session also continues the “short-sighted, downward spiral” of providing less money for education and economic development and more for unsustainable benefits not available to the average taxpayer, said Dave Adkisson, Chamber president and CEO.
“Kentucky’s businesses have a significant stake in our public employee pension systems – both at a state and local level,” he said. “Kentucky’s private employers, most of which are small, local businesses, directly contribute approximately 40 percent of all state revenue in income, corporate and sales taxes, in addition to individual income, payroll and sales taxes.”
Kentucky Retirement Systems (KRS) investment yields, which were supposed to produce two-thirds of system funds, were stunted by the 2008 economic crisis. The funding gap for the retirement systems has grown by roughly $3 billion in the past year alone, and the shortfall for the Kentucky Retirement Systems’ six groups is over $30 billion, according to the Institute for Truth in Accounting.
The state’s pension systems administer benefits to more than 325,000 current and former public employees.
The state’s bond rating has been downgraded twice by major rating agencies because of unfunded pension liabilities, meaning it will cost taxpayers more to finance public projects such as new schools. Most recently, Standard & Poor’s lowered the commonwealth’s overall financial health to 47th best in the country, the Chamber said.
A recent Pew Center on the States study describes the commonwealth’s pension situation as “unsustainable” because of this liability and because KRS is paying out more than it is taking in.
“Skyrocketing pension costs mean less tax money for education and economic development – investments Kentucky should be making to ensure a strong future for our children, our communities and our state,” the Chamber said.
Senate Bill 2, sponsored by Majority Floor Leader Sen. Damon Thayer and co-sponsored by five other Republican senators, is a “responsible roadmap” that will guide the state to a sustainable solution, according to the Chamber.
The Senate State and Local Government Committee unanimously passed the pension reform plan on Feb. 6, which would create a 401(k)-like hybrid plan for new government employees.
The bill mirrors the recommendations of the bipartisan Task Force on Kentucky Public Pensions, which last year reviewed Kentucky Retirement Systems (KRS).
Under SB 2, pension benefits for new hires would be calculated in a hybrid shared-risk plan. New employees would be guaranteed a four percent annual return on contributions, while a quarter of returns over four percent would go to the state’s funds.
The bill also demands that the state begin paying its full contribution beginning next fiscal year, which means lawmakers would need to find about $250 million a year in additional funds for the system. The state currently is scheduled to pay 61 percent of the actuarially required contribution in 2015.
Other provisions in the bill would prohibit public employees from being re-employed with the state for up to two years after retirement and would repeal annual cost-of-living adjustments provided to retirees. Thayer said the increase had been suspended during previous budgets and could still be reinstated in future budgets.
The Senate approved the bill Thursday, 33-5. It goes to the House for consideration.
“It is imperative that the legislation be enacted this session without watering down the recommendations,” said the Chamber, which represents 2,700 member businesses that employ over half of Kentucky’s workforce. “Help make sure Kentucky’s pension system is put on the right course. Let your legislators know that Kentucky’s employers won’t consider the 2013 session a success unless meaningful pension reform is enacted.”
Since 2007, the Kentucky Chamber of Commerce has been seeking a fix to the state’s public pension problems, citing the threat that escalating public retirement costs pose to the ability of governments to provide basic services. The Chamber highlighted the problem again in 2009 and 2011 with its Leaky Bucket Reports that identified the growing costs of Kentucky’s public employee benefits.
The Chamber has set up a web portal to send messages to state legislators. Click here to use it.
Visit the Kentucky Chamber of Commerce website for more information.