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Pension plan is a good step

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SENATE UPDATE by JIMMY HIGDON/State Senator

Our public pension systems are in peril. An ailing pension system threatening our state’s financial stability is the number one issue facing our great Commonwealth. They risk reducing and crowding out many other areas of the Commonwealth’s budget. The Kentucky Employee Retirement Systems (KERS), the plan covering the Commonwealth’s non-hazardous employees, is within about six years of default. The funding for this system and many others have been neglected by two generations of politicians. That, coupled with unfunded mandates to the systems, unrealistic payroll assumptions, and failure of system management to meet assumed rates of return have left us in this position.

The pension systems are not a simple issue. We have eight systems, each of which has two components: insurance and pension. Inside of that there are three main tiers of employees with varying levels of benefits, local policy impacts, social security implications, etc. The challenges that we are confronting in upcoming pension reform are unparalleled legally and financially.

The framework of our proposed reform focuses on restructuring the pension funding mechanism to ensure the systems are on the pathway solvency. In this plan, there will be no Cost of Living Adjustment (COLA) “clawbacks,” and checks for those already retired will not be reduced. Those who are still working will not be forced into an older retirement age and their current defined benefits will remain the same until the employee reaches their promised level of service for their pension type. Additionally, future non-hazardous employees and teachers will be enrolled in a defined contribution retirement plan that provides comparable benefits to the previous plans.

For those enrolled in hazardous plans and future hazardous employees, their benefits will remain the same. This reform will also close a loophole in death benefits for families of hazardous employees, ensuring those who lose their family members in the line of duty will receive their full benefits.

Many people have also asked how legislative pensions will be addressed in pension reform. The proposed plan ends the Legislative Retirement Plan and transfers its assets and administration to the KRS Board. New legislators and legislators elected after 2013 will be placed into the same defined contribution plan as public employees.  Other legislators will see their pension benefits reduced as any future benefits will be in the KRS plan. The legislation also ends the ability of current legislators to “supersize” their pensions, and it will reduce the monthly benefit of retired legislators who did increase their pension by closing a loophole and recalculating benefits.  As officials elected and held accountable by you, the citizens of our great Commonwealth, we want to ensure these reforms are put in place across the board.

Lastly, I want to emphasize that there will be no emergency clause attached to this proposed legislation. That means the reforms will not go into effect until July of 2018, offering sufficient time for current state employees to consider how the changes may affect them. Ultimately, we hope these reforms help us better utilize taxpayer dollars, improve the Commonwealth’s rating with credit agencies to strengthen our economy, and most importantly, provide a sustainable retirement for our public servants.

This is not a fun spot for any of us. Public employees have every right to be frustrated. Private citizens have a right to be frustrated. However, we will kick the can no further. Leadership is about doing the right thing for the right reasons. For a copy of the full plan, go to www.pensions.ky.gov. The bill draft will be available to the public in the very near future.

I also have to commend Governor Matt Bevin for his leadership on this issue.  The plan we have crafted is not perfect, but I think it is good step in the right direction. I will continue to listen to concerns, answer questions, and make suggestions to improve the plan.

If you have any questions or comments, please call me toll-free at 1-800-372-7181, on my home phone at 270-692-6945, or email me at Jimmy.Higdon@LRC.ky.gov.  You can also review the Legislature’s work online at www.lrc.ky.gov.