FRANKFORT – The Senate State and Local Government Committee unanimously approved a proposal Wednesday aimed at paying down public pension debt and creating a new retirement plan for future employees of the state.
Senate Bill 2, sponsored by Senate Majority Floor Leader Damon Thayer, R-Georgetown, mirrors the eight-point proposal adopted by the Task Force on Kentucky Public Pensions in November. The task force, co-chaired by Sen. Thayer, met during the interim to discuss ways to address the estimated $30 billion unfunded liability faced by Kentucky Retirement Systems.
The bill would require the Commonwealth to pay the full actuarially required contribution (ARC) to the pension system by fiscal year 2015. Currently, the state is scheduled to pay 61% of the ARC that year.
According to Sen. Thayer, that higher level of funding is needed to sustain the pension system long-term.
“For us, the math quite simply doesn’t add up. If we don’t do something our pension system is going to be insolvent in as little as four years,” Thayer said.
Other provisions included in the bill would repeal the current cost-of-living adjustments provided to retirees. Lawmakers pointed out that the adjustment had been suspended during previous budgets and could still be reinstated in future budgets.
To help provide short-term relief, the proposal would reset the amortization period for payment of the unfunded liability from 26 years to 30 years.
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.
Supporters of the hybrid cash balance plan say the option is more predictable and sustainable than the defined benefit plan currently provided to public employees and retirees.
The bill now goes to the full Senate for consideration.