Opponents say key portion of pension-overhaul bill could cost Kentucky millions

February 11, 2013 | | Comments 0

By Beth Musgrave

FRANKFORT — A controversial provision included in a pension-overhaul bill approved last week by the state Senate could cost the state millions more in coming years, a union and public employee group said Monday.

Steve Barger, coordinator of the Kentucky Public Pension Coalition, which represents state workers and retirees, urged the General Assembly to take its time considering legislation that could have unintended costs and consequences.

“We have quite a bit of concerns about the process,” Barger said. “They moved too quickly and did not get all of the facts.”

Senate Bill 2 would overhaul the state’s pension system by moving new state employees to a 401(k)-style hybrid plan, called a cash-balance plan; eliminating annual cost of living increases for state retirees; and requiring lawmakers to fully-fund the state’s retirement systems by 2015.

The cash-balance plan would spread investment risk between the state and public employees, while guaranteeing workers a return of at least 4 percent on their investments.

The plan was touted as a way to save the state money on pensions in coming years, but a new analysis suggests it might cost $55 million more over twenty years, according to opponents.

Cavanaugh Macdonald Consulting, which performs actuarial analyses for the Kentucky Retirement Systems, released a report on Feb. 7 — the day the Senate voted to approve SB 2 — that showed the cash-balance plan could cost more than allowing future workers to join the existing pension system.

“It’s more likely to be more expensive than the current plan,” said Jason Bailey, the executive director of the Kentucky Center for Economic Policy.

The measure now moves to the Democratic-controlled House, whose leadership has signaled that there will likely be substantial changes to SB 2.

The plan passed by the Senate included recommendations of a task force that looked at the state’s ailing pension system, which has roughly half the money it needs to pay the promised benefits for all current and future retirees. The shortfall was caused by years of underfunding by the state and because of poor investment returns during the recession.

House Speaker Greg Stumbo, D-Prestonsburg, has said he and others in the House are not convinced that the state needs to move to a cash-balance plan.

Stumbo also has criticized SB 2 because it does not include any new money for the state’s increased contribution to the pension system — estimated to be more than $300 million in additional dollars by July 1, 2014.

“When you go to a defined-contribution plan it costs money,” Stumbo said.

Stumbo and Rep. Brent Yonts, chairman of the House State Government Committee, have said that they want to include a funding source in the House’s pension bill.

They have not said what funding options they might consider, but Stumbo said Monday he hopes to announce those options by the middle or end of this week.

Filed Under: Greg StumboKY General AssemblyState BudgetState Government

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