All three candidates in the 2015 governor’s race recently sat down with the Kentucky Chamber and discussed their different approaches to how the state can address the underfunding of Kentucky’s public pension systems.
Republican candidate Matt Bevin suggested the state needs to audit every one of the state’s pension plans with an outside auditor as opposed to the state auditor.
“Open the books, let people see exactly what is going on and what isn’t going on under the hood,” Bevin said. “Number two, freeze the existing plan. For those who are already a part of it, those who are state employees, or retirees we have an obligation, a legal and moral obligation, to fulfill the promises that have been made. We won’t be able to if we allow it to become insolvent.”
Bevin continued to say that the systems need to be moved to a 401k style plan right away. Additionally, Bevin suggested the state begin offering lump sum incentives to some in the system to allow those individuals to remove themselves from the system and have control of their contributed amounts (hear more of this discussion at 2:00).
When asked if the idea of giving out these types of payments would drain the few resources the systems do have, Bevin said actuarial assumptions to assure this would not happen and noted that the offer would not be opened to everyone and he feels most wouldn’t take the state up on the idea.
In recent years, each of the state’s two largest systems have discussed the idea of bonding in order to get an influx of cash. Bevin said a multi-billion dollar bond is not the answer for these systems.
“We’re talking about the type of gauze and the type of topical ointment but we are not stopping the bleeding,” Bevin said (at 4:30 in interview below).
Democratic candidate Jack Conway said there are specific changes that need to be made to the systems to ensure solvency going forward including increased retirement age and others.
“People are going to have to work longer. For current and future hires, we are going to have to make sure we have the proper contributions going into the systems,” Conway said, noting the change made in 2012 to a hybrid system for new hires which he said he agrees with.
Conway went on to say that it took the state 15-20 years to get into the pension crisis we now face as full contributions were not made and market struggles took their toll and he believes it will take years of responsible budgeting, making the full actuarial required contribution (ARC) payments and more to get out of it.
During the interview and at the Kentucky Chamber’s Business Summit, Conway stated that a dedicated revenue source will be necessary going forward. When asked where he would find that funding source, Conway said there are many areas to look at.
“Expanded gaming is one option. Look, as attorney general, I have cut my office’s budget by 40 percent, I have done more with less. And we can find some efficiencies in state government and free up some sources of funding,” Conway said (at 1:30 in the interview below). “But we are going to have to make that payment going forward because our financial ratings and our ability to bond and build for our future depends on it.”
As for the idea of bonding to shore up the systems, Conway has said he is not a fan of bonding and believes it will not solve the problem at hand. See the full interview segment with Conway below:
Independent candidate Drew Curtis released a detailed plan on how to tackle the underfunding of the public pension systems before even turning in the signatures required by his campaign to appear on the ballot.
Curtis’ plan includes suggestions including obtaining a line of credit to be tapped as needed, fully funding the actuarially required contribution each year with an additional amount to help shore up the systems faster and more.
In his interview with the Kentucky Chamber, Curtis said while he was looking into the issues in the state he “almost quit” when reviewing the underfunded pension liabilities. But to solve it, Curtis said he would like to implement his solution which he believes could work.
“So the problem you’re trying to solve is basically, what is the actual issue? Well, the checks must go out. That’s it. Because the minute the checks don’t go out, we have defaulted. So it is kind of simple but it turns out that other solutions that have been proposed have not been trying to solve that problem. They have been trying to solve the funding ratio which is not bad but the funding ratio is an indicator. We don’t need to fund the indicator, we need to make sure this thing can actually support itself,” Curtis said (at 4:00).
Curtis continued by saying the goal of getting back to 100 percent funded while racking up the least amount of debt and interest expense could be achieved in three ways (at 6:30) which he laid out in a spreadsheet in his pension plan which can be seen here (three separate plans in different tabs at the bottom).
Among the suggested changes Curtis said he would like to make, he said he would like to do away with all legislator pensions until the problem is solved (at 2:15 in interview), putting the pension systems back into open records requests through executive order, the possibility of moving to a 401k type system once the system is fully funded again and more (starting at 10:00 in the interview).
Watch the full interview segment with Curtis on pensions below:
More interview segments with all three candidates on a wide variety of policy issues will continue to be posted on Bottom Line in the coming weeks.