Kentucky reveals pension reform plan but final draft not released

Gov. Matt Bevin, together with Senate President Robert Stivers and House Speaker Jeff Hoover, unveiled “Keeping the Promise” – a comprehensive plan to save Kentucky’s ailing public pension systems.

Highlights of the plan include:

“Keeping the Promise” will save Kentucky’s pension systems and meet the legal and moral obligations owed to current and retired teachers and public servants
Requires full payment of ARC and creates new funding formula that mandates hundreds of millions more into every retirement plan, making them healthier and solvent sooner
For those still working: no increase to the full retirement age, and current defined benefits remain in place until the employee reaches the promised level of unreduced pension benefit
For those retired: no clawbacks or reductions to pension checks, and healthcare benefits are protected
For future non-hazardous employees and teachers: enrollment in a defined contribution retirement plan that will provide comparable retirement benefits
For current and future hazardous employees: will continue in the same system they are in now
Closes loophole to ensure payment of death benefits for the families of hazardous employees
Stops defined benefits plan for all legislators, moving them into the same defined contribution plan as other state employees under the jurisdiction of the KRS Board
No emergency clause: law will not go into effect until July 1, 2018
Structural changes should improve the Commonwealth’s rating with credit agencies, which have downgraded Kentucky’s rating, citing unfunded pension burdens

Gov. Bevin will call the General Assembly into special session in the coming weeks to pass into law these much-needed reforms.

The Commonwealth’s three major public pension systems — Kentucky Retirement Systems (KRS), Teachers’ Retirement System of Kentucky (TRS), and the Kentucky Judicial Form Retirement System (KJFRS) — collectively administer eight distinct retirement plans.

The state currently has an unfunded pension liability of at least $64 billion, ranking as the worst funded system in the nation. Using prior funding patterns, experts conclude that the Kentucky Employee Retirement System, Non-Hazardous (KERS-NH), will run completely out of money by the year 2022 if meaningful pension reform does not occur.

With $7 billion in negative cash flow over the past decade, Kentucky’s pension spending has been increasing nearly five times as fast as revenues. This effectively reduces funds available for other important budgetary priorities such as education, healthcare, public safety and transportation infrastructure.