Business community urges legislators to take action on pension reforms in 2019

Cork, Ireland

As the newly formed Public Pension Working Group is meeting in the interim of the 2019 session before lawmakers return in February, the Kentucky Chamber sent a letter to all legislators Wednesday urging action this year to strengthen the state’s struggling pension systems.

In the letter, Kentucky Chamber President and CEO Dave Adkisson said the business community commends the legislature for forming the Public Pension Working Group to examine the systems and make recommendations for reform, stating the reset on the issue is necessary to look at the facts and allow for deliberate consideration of any proposed changes to the pension plans.

All previous reforms made to the Kentucky Retirement System (KRS) and Kentucky Teachers’ Retirement System (KTRS) were noted in the letter. Adkisson also asked legislators to consider the business community’s perspective on the need for reforms. The items listed in the letter include the strain pensions has created on the state budget leaving less money for education and other government services, increased burden on taxpayers as the growing unfunded liability of the systems could cause tax increases, downgrades in the state’s bond rating, and more.

“The Commonwealth’s interests are best served by a deliberate process that produces thoughtful pension reforms that can win legislative approval and withstand a costly and time-consuming legal challenge that would, at best, delay needed reforms and could ultimately undo needed changes. We believe the best way to develop a clear and certain path forward is through a combination of additional financial investments in the retirement system and benefit changes that are legally sustainable,” Adkisson writes in the letter.

Moving forward, Adkisson said, the Chamber believes it is important to honor commitments made to public retirees while also offering competitive retirement benefits to help the state recruit and retain quality workers.

As for potential changes, the Chamber encouraged legislators to consider the following options for reforms:

  • Increase the minimum age for full retirement benefits to at least age 62 or impose an age-and-service combination that would achieve equal financial savings.
  • Place new teachers in a hybrid style plan with contribution rates that account for the fact that teachers do not participate in Social Security.
  • Remove provisions that allow public employees to boost their pensions (such as the use of the highest three salary years to calculate benefits, higher multipliers for higher years of service, and using unused sick leave to count toward years of service).
  • Remove inviolable contract applicability for new teachers (like the 2013 legislative provision that removed the inviolable contract for new employees participating in the Kentucky Retirement Systems).
  • Adopt the level-dollar method to determine the ARC which would amortize the total unfunded actuarially accrued liability of pension funds over a set period (like a home mortgage). The current method of calculating the ARC using percentage of payroll is creating underfunding due to shrinking state government payrolls and outsourcing of jobs.

Read the full letter from the Kentucky Chamber sent to all legislators here.

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Jacqueline Pitts
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