Pension reform recommendations a promising first step

  • Recent actions by a legislative task force meeting in Frankfort could help avert the train wreck Kentucky faces in its public pension programs. But some additional, critical steps must be taken if that possibility is to become a reality.

    The consensus recommendations of the Task Force on Kentucky Public Pensions represent significant progress and reflect the kind of bipartisan compromise needed if the state is to successfully meet its challenges in pensions and other areas. We saw this approach work well before, when Kentucky enacted penal code reforms in 2011, so the development on pensions is both welcome and encouraging.

    As the Kentucky Chamber has noted, the state must enact serious, lasting reforms if it is to create a sustainable pension system for state and local employees. The task force recommendations, if enacted, would bring the state public pension system more closely in line with those in place in the private sector.

    The biggest missing piece, and the one that is a bottom-line requirement for the success of the effort, is funding. The task force did not specify how the state should come up with the additional funding, estimated at more than $300 million in fiscal 2015, needed to enact its recommendations. The extra cost is an added burden of more than 3 percent on an already strained state budget. That issue must be resolved, or the reform effort will be a non-starter.

    Also, in the Chamber’s view, the recommendations would be strengthened by:

    • Adding two more members to the Kentucky Retirement System (KRS) board to represent private-sector employers
    • Expanding KRS board members’ responsibilities to reflect a dual mandate – to protect the interests of taxpayers as well as public employees
    • Creating a 401(k)-style plan for new employees and offering financial incentives to current employees to convert to the new plan

    Finally, and perhaps most important, state policymakers must address rising health insurance costs. These costs, which make up just over half of the required pension contribution under the public employees’ system, must be aggressively managed to keep them at levels consistent with the private sector.

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    Wednesday, November 28, 2012

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