Legislation aimed at curbing more than $18 billion in unfunded pension liabilities for public workers cleared the Senate Thursday.
Senate Bill 2, which would offer a hybrid cash balance pension plan for future state workers, legislators and judges, eliminate automatic cost-of-living raises for retirees from state law and mandate the full payment of actuarially required contributions to the Kentucky Retirement Systems, passed by a 33-5 vote.
The bill now heads to the House, where its future is less certain.
Senate Majority Leader Damon Thayer, the sponsor of the bill, said it represents a bipartisan compromise on an issue that has caused bond-rating agencies to take notice of Kentucky’s growing pension debt. The bill mirrors recommendations made by a pension task force co-chaired by Thayer, R-Georgetown, and retired Democratic Rep. Mike Cherry of Princeton.
During a speech on the Senate floor, Thayer compared the billions in unfunded pension obligations to an oil spill.
“Senate Bill 2, if passed by both chambers and signed into law by the governor, will cap that spill and start cleaning up the mess,” Thayer said.
House Speaker Greg Stumbo, D-Prestonsburg, has said pension reform should be passed with a dedicated funding source. Senate Republican leaders have said natural growth in the economy would garner enough money to fund the estimated $120 million needed in actuarially required contributions by fiscal year 2015, as called for in SB 2.
Funding questions remain, but most senators agreed the state must make full payments to KRS while reforming the pension plan.
Senate Minority Leader R.J. Palmer, D-Winchester, called SB 2 a “great first step,” but said the state must commit to funding pension
“Simply changing retirement benefits is not the sole solution,” Palmer said. “We cannot make the mistakes of the past, and we must keep our promises to those hard-working current employees, too.”
Sen. Julian Carroll, D-Frankfort, voted against SB 2 because it does not address how the state will make full pension contributions. He also questioned switching to a hybrid cash balance plan for new hires and repealing the retiree cost-of-living adjustment provision in state law.
“Some adjustment of that may well have been necessary for a few years until we can catch up with this funding problem, but to repeal it is absolutely wrong,” Carroll told The State Journal. “Certainly when we get (KRS) back in fairly good financial shape, we ought to resume the COLAs again.”
Striking the cost-of-living adjustment language would not prevent future legislatures from granting raises, Thayer said in a floor speech.
House Democratic leaders may look into retaining the current defined benefit pension program rather than switching to the hybrid cash balance plan.
When asked about that possibility, Thayer said keeping the current system would “dig the hole deeper.”
“We need to act now in this session,” he said.
“This is a bipartisan consensus plan, and I hope the members of the House will strongly consider the work of their former member, Mike Cherry, who feels very strongly about this as evidenced by the final work product that the task force delivered.”