By Beth Musgrave
FRANKFORT — A pension reform bill that would move new state employees to a 401(K)-style hybrid plan and eliminate annual cost-of-living increases for retirees cleared its first legislative hurdle Wednesday.
The Senate State and Local Government Committee voted unanimously — 10-0 — to pass Senate Bill 2 on Wednesday. It now goes to the full Senate, which is expected to vote on the measure on Thursday.
The bill contains the recommendations of a task force that studied Kentucky’s ailing pension system this summer. Kentucky’s pension system has less than half the money it needs to pay for all current and future retirees.
Senate Bill 2 would move new state employees into a hybrid plan that would guarantee retirees a rate of return on investments instead of a defined pension benefit. The bill also says the state should pay its full contribution to the Kentucky Retirement Systems beginning next fiscal year. However, there is no funding mechanism for the additional payments to the pension system, believed to be more than $300 million beginning in July 2014.
Senate Majority Leader Damon Thayer, R-Georgetown, and sponsor of SB 2, said the task force opted not to include the funding mechanism because there was no consensus on how to make the increased payments.
“We did not have the support to include a bond or a tax increase,” Thayer said.
The bill directs the General Assembly to find the money in 2014, when the legislature tackles the two-year state budget. House Speaker Greg Stumbo, D-Prestonsburg, said Wednesday that the funding issue should not wait until 2014.
“I think it would be unwise to pass any pension bill that does not provide an adequate funding source,” Stumbo said. Stumbo said that the House is looking at a variety of funding options but declined to say what those options were.
But the Democratic House may also have other problems with Senate Bill 2, Stumbo said. Stumbo said that some in the House have questioned if they need to move new employees to a hybrid plan.
“We have seen some growth in the economy,” Stumbo said. Stumbo said that many House members want to know how much it will cost to keep a defined benefit plan rather than move to a hybrid plan.