Republican leaders in the Louisville Metro Council are headed to Frankfort this week to lobby state lawmakers on pension reform.
The city’s pension cost has more than doubled in the past decade to make up approximately 15 percent of the budget. In his State of the City address, Mayor Greg Fischer urged residents to call for their legislators to take action in this year’s session to change the system.
Republican Caucus Chairman Ken Fleming, R-7, and Vice-Chairman Jerry Miller, R-19, are scheduled to meet with Republican state Sen. Damon Thayer of Georgetown, who co-chaired a legislative task force on the state pension system.
Miller says rising pension costs are at critical stage and are extremely important for Louisville residents because of the potential impact on city services.
“If you’re in government you have to deal with pension cost because of it’s dramatic increase, which is really crowding out a lot of other things we’d like to do—social services and a variety of other things,” he says.
The Kentucky Retirement Systems is woefully underfunded and has only 44 percent of the funding to meet its future obligations to state and local government workers.
Beyond the agreement that officials need to do something to make state pensions solvent, Democrats and Republicans differ on how to adequately fund and reform the retirement system.
Majority Republicans in the Senate are likely to support a reform package that would require full funding of the retirement system, repeal annual cost-of living adjustments and create a more market-based pension plan for new hires.
At the same time, it remains unclear if House Democrats will back a bill without a dedicated revenue stream to pay annual retirement contributions, which could jump by more than $300 million in the first year of reforms. Some Democrats also are uncomfortable repealing benefit adjustments rather than just suspending them until more funds are available.
The mayor has not backed any specific plan for the General Assembly to adopt, but Miller and Fleming are urging 8 proposals that they want state lawmakers to enact, including a plan to make the system more transparent.
Currently, KRS does not release information regarding government employees’s pension even though their salaries are made public.
“You can find what the salary is for every person in Kentucky state government and Metro government by going online. Unfortunately, the way the Kentucky Retirement System interprets the state open records law they will not disclose what the benefits are,” says Miller. “That’s an assault on transparency.”
The east Louisville councilman says that the goal should be to move the retirement system for public employees closer to the plans of taxpayers working in the private sector.
From Miller’s office:
1. Do no harm, which is exactly what the issuance of Pension Obligation Bonds would cause.
Issuing POBs to address Unfunded Liabilities is akin to obtaining a second mortgage on one’s
house and investing the proceeds into the stock market in hopes of earning enough to be able to
pay the POB interest AND make payments on the first mortgage. It is a fool’s gamble.
2. Amend KRS 61.661 Member’s Account Confidentiality exempting persons from the provisions of
Kentucky’s Open Records Law KRS 171.410-171.740. Any participant of a KRS or KTRS retirement
plan who has ever held elective office should not enjoy this exemption. Any beneficiary whose
benefits from all KRS and KTRS plans total more than twice Kentucky’s Per Capita Income (2 x
$33,348 = $66,696) shall not enjoy this exemption from Transparency.
3. Suspend cost-of-living pension adjustments for beneficiaries until their respective pension
system is 80% funded. This is a less painful way to effectively decrease costs at a gradual rate,
which doesn’t have a significant immediate impact on beneficiaries.
4. For all current participants in non-hazardous retirement plans, increase their share of the
pension cost. (In 1985, employers paid 5.25% of salary, while the employee put in 4%, which
equates to 43% of their pension cost. Today, an employee hired prior to 2012 pays only 20%
of the cost of their pension.) Over a period of years, the contribution percentage for a non-
hazardous employee must be increased until it equals at least 33 1/3% of the cost. (e.g. if their
employer contributes 20%, the employee’s share would be 10% of payroll.) This should not
violate the theoretical “inviolable” contract, but would likely be tested in court.
5. Place all new non-hazardous duty employees, including Judges, Legislators and other Elected
Officials, into a “stacked hybrid” plan, which is a defined contribution retirement plan backed by
a lower-level defined benefit plan – somewhat like an annuity.
6. Reduce health care insurance costs by using consumer-directed plans. We cannot continue to
allow public employee retirees under 65 to have better health care benefits than the taxpayers.
7. For new employees who choose to retire prior to Medicare eligibility, or who have dependents
not covered by insurance or Medicare, allow such individuals to remain in their pre-retirement
health plans, provided they pay the full premium – similar to COBRA coverage. This will give
them the benefit of continued insurability and lower group rates.
8. Finally, allow participating groups in the CERS plan, which is much better funded than KERS and
other most KRS plans, to take its assets and liabilities into a completely separate entity that
would be run entirely by CERS member groups and their employees.