FRANKFORT, Ky. (Nov. 21, 2013) — A prohibition against “pension spiking” approved by state lawmakers with the passage of Senate Bill 2 during the General Assembly’s 2013 Regular Session drew questions Wednesday from a state legislative committee.
The prohibition was mentioned in a presentation to the Interim Joint Committee on State Government by Kentucky Retirement Systems Executive Director William Thielen, who said the policy change will take effect on Jan. 1, 2014, as will implementation of a hybrid cash balance plan for new state hires. All policies will be implemented by KRS.
The pension spiking prohibition states, explained Thielen, that the actuarial cost to the retirement system created by an annual salary increase of greater than 10 percent during a retiree’s last five years of KRS-covered employment is the responsibility of their last KRS-participating employer. Implementing those provisions, said Thielen, “has been particularly problematic for our staff.”
“We’re having to design various features of our technology system to deal with that, but we will complete that as well to the extent necessary as of Jan. 1,” he said. “There are some issues related to the pension-spiking provision you may be asked to consider during the upcoming session in 2014.”
Senate Majority Floor Leader Damon Thayer, R-Georgetown, who sponsored 2013 SB 2, said he doesn’t foresee any change to that policy.
“I don’t foresee any roll-back of any of the provisions of SB 2 occurring in 2014, (or) until the bill goes into effect for a while and we see how it works,” Thayer said.
Thielen said KRS will likely recommend legislation to clear up some “ambiguities” in the legislation, but that KRS itself “has no plans to try to do anything to that provision.”
Of the approximately 80 public pension plans nationwide, Theilen said Kentucky ranks in the middle in terms of rate of return. He said the average rate of return is around 8 percent; Kentucky’s rate of return is 7.75 percent.
KRS’s Kentucky Employee Retirement System for non-hazardous employees (the largest of the KRS systems) was only 27.3 percent funded as of June 2012. Total unfunded liability for KRS plans which exclude teachers was $13.9 billion last year, according to a Sept. article on the website BenefitsPro.
The committee also received an in-depth report on the Kentucky Teachers’ Retirement System from KTRS Executive Secretary Gary Harbin, who said that system’s liability is growing at a rate of 7.5 percent and must be addressed — to the tune of $386 million in fiscal year 2014 and over $400 million in fiscal year 2015, Harbin said — to help meet KTRS’ actuarial needs.
Harbin said KTRS’ current $12 billion unfunded liability will grow to $23 billion “if a funding plan is not put in place.”
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