Like an old rerun that plays over and over, the topic of public pension reform is back on the table, this time for review by the Task Force on Kentucky Pensions, which met for the first time Monday and is supposed to come up with recommendations for legislative action in 2013.
There’s some reason for concern that any new ideas will be less palatable to public workers and retirees than the pension reform measure enacted by the 2008 General Assembly. That law’s saving grace, from the employee viewpoint, lay in exempting current workers and retirees from its strongest medicine. People hired since then must work at least 30 years instead of 27 to draw full retirement. But those employed at the time of passage remain under the old rules. The law further provided for state government to make bigger contributions to the retirement funds.
Unfortunately, this reform turned out to be less than a resounding success. The Kentucky Retirement Systems’ unfunded liability – money it owes to present and future retirees but doesn’t have on hand – topped $19 billion at the end of the 2011-2012 fiscal year. The investment returns needed to grow the various accounts have suffered from the instability of financial markets and the systems have had to sell off holdings that might have helped cut the liability.
This is not a good situation. No institution can indefinitely continue paying out more than it takes in, and the Pew Center on the States used a familiar term – unsustainable – to describe the current condition of the retirement systems. Last month, Pew listed Kentucky, Connecticut, Illinois and Rhode Island as having the nation’s most underfunded public retirement programs.
So now that relatively painless solutions to the pension debacle have fallen short, what next? Will individuals on the payroll or already drawing retirement checks get short-changed? Will the systems have to move from “defined -benefit”pensions to “defined-contribution” programs with no guarantees?
The latter choice, embodied in 401(k) style savings accounts, keeps popping up even though most workers know it would jeopardsize their retirement security. Senate President David Williams tried unsuccessfully to get such a proposal through the legislature last year, with exemptions for existing employees and pensioners. Only new hires would have had to sign up, so there would have been two different systems – one for workers remaining in the defined-benefit division and another for new hires covered by defined-contribution rules. A study determined that operating on this double track would have cost the government even more money than it spends now, at least in the near term. Rep. Mike Cherry, D-Princeton, co-chairman of the task force, says any new proposals would apply to public workers, judges and legislators, all currently covered by guaranteed pensions.
No specific plans were unveiled. It’s always possible the task force will offer modifications as innocuous – and ineffectual – as those passed in 2008. Or, recognizing the severity of the shortfall, it could ask the legislature to take more drastic steps – perhaps signaling the beginning of the end of traditional pensions for Kentucky’s public employees.