House GOP puts forth plan to fund pension systems without borrowing money

UPDATED WITH VIDEO: Noting the significance of the state’s pension crisis, the House Republican Caucus announced their plan to shore up the state’s retirement systems in a press conference Monday.

The House GOP plan involves putting a required base contribution in law to ensure the systems receive the funding they need as well as a four year phase in plan for meeting the full actuarially required contribution (ARC).

The main focus of the plan put forth by the House Republicans Monday is to begin taking an aggressive approach to helping solve the state’s pension crisis without bonding or borrowing money. The new plan also achieves its stated goals without “raiding” employee funds or the $500 million set aside by the governor in his budget proposal.

“We are proud to present the House Republican plan to address our pension crisis in the Commonwealth of Kentucky,” House Republican Leader Jeff Hoover said Monday. “We do so in a fiscally responsible manner. We do so all without borrowing. We do so all within the framework of the governor’s plan.

Explaining the part of the GOP plan that relates to the Kentucky Teachers’ Retirement System, Rep. Brad Montell explained that they are seeking to set up a permanent funding plan as well as maximizing available federal dollars in order to fund even more than the levels requested by Governor Matt Bevin in his budget proposal.

“We take the governor’s contribution to KTRS that he offered in his budget, we establish a base contribution in statute, and we run all contributions through the payroll in order to pick up the federal match from employers. By doing it this way, we are able to actually increase the contribution amount from the governor’s original proposal,” Montell said.

The GOP plan includes a four year phase-in to fully fund the ARC (which is detailed in the graphic below). The Republican caucus said the goal of their approach is to provide stability to the pension plans by establishing strict guidelines that will be put in law to make them “permanent and effective.”

phase in.JPGRather than fully funding the ARC right away, the House Republicans are focusing on the long-term strategy for stability and paying down the unfunded liabilities of the systems in a way that helps pay a higher ARC over time rather than paying in a lump sum and not having a plan for the out years.

“What we are going to do here is we have a House overmatch amendment that takes the governor’s direct funding and runs it through our normal payroll process and through that process, we are going to capture federal funding to help us enhance the ARC,” Rep. Phil Moffett explained.

The GOP representatives speaking at the press conference Monday expressed a need for state government to step up and “be the adult in the room” when it comes to addressing the major issues faced by the system before it is too late.

“Just by taking this approach, we are able to put a lot more money into the pension systems than just covering the ARC,” Rep. Brian Linder said. “What we are doing is putting a lot more money in over the ARC which is unprecedented and it sends a strong statement and message to not only the state employees but also to the taxpayers of Kentucky and to the bond agencies who are watching our movements this week.”

Watch video coverage of the press conference below:

The Kentucky Chamber recently launched a statewide awareness campaign on the state’s pension crisis, which can be seen here. The Chamber also released a video explaining the state’s pension crisis in under three minutes. Watch here.

Categories: 2016 General Assembly, Pensions

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