States around the country continue to grapple with the unfunded liabilities of public employee pension plans, but a new report from the Pew Center on the States says Kentucky is still one of the worst. The report noted that Kentucky failed to pay its annual pension contribution from 2005 to 2010, and that the state’s pension system was 54 percent funded in fiscal year 2010 and faced a $17 billion funding gap.
The Commonwealth joined Connecticut, Illinois and Rhode Island as the only states in the country with pensions funded less than 55 percent in 2010. The national average was over 70 percent. Kentucky did fare better than other states in funding retiree health care costs, at 15 percent versus the national average of 8 percent.
Kentucky business leaders and individuals are becoming increasingly aware that tax dollars for education and other important programs are being diverted to keep afloat an unsustainable pension system. The Kentucky Chamber commends the state legislature for making much-needed changes to the state’s pension system in 2008 and 2010, but believes more aggressive actions are necessary.
Pew noted that other states have pursued comprehensive reforms to ensure fiscal stability of their retirement systems, including moving to a defined contribution or hybrid plan. The Chamber recommended this approach in its Building a Stronger Bucket report, pointing out that in the private sector only 20 percent of all Americans age 50 and over received some form of employment-based pension. We urge the members of the Kentucky Public Pension Task Force, created during the 2012 legislative session, to strongly consider this and other solutions that can be enacted in 2013.