FRANKFORT — An updated analysis of Kentucky’s poorly funded public pension systems by PEW Charitable Trust indicates previous reforms of the system enacted in 2013 put the systems “on track to full funding provided the state continues to stay on the course charted in 2013.”

The report’s authors also express reservations about the short-term costs and impact on the state budget of more changes proposed by Gov. Matt Bevin in draft legislation released last October.

PEW advised state lawmakers in 2012 and 2013 when the General Assembly enacted Senate Bill 2, which placed new hires into a hybrid cash balance plan, utilizing both 401(k) style savings as well as traditional defined contributions from the state, called for full annual funding of the system by the legislature, and limited future cost-of-living adjustments for beneficiaries.

At the time, supporters promised the plan would — over 20 years — restore the financial stability of the state’s public pension systems which are among the worst funded in the nation. Current estimates indicate the various plans face combined unfunded liabilities of $34 billion to $60 billion.

Bevin, elected in 2015, has called the pension underfunding the biggest fiscal crisis facing Kentucky and is proposing more drastic reforms, including moving employees hired since 2013 into 401(k) style plans exclusively; requiring teachers and employees to contribute 3 percent more of salaries to fund their health insurance, and limiting some benefits.

Bevin also persuaded the legislature in 2016 to appropriate $1.2 billion to the pension funds, the largest contribution ever and larger than the annually required amount at that time.

The governor wants to call a special session to enact reforms outlined in October, but that proposal has met stiff opposition by teachers, state workers and retirees and the Republican-controlled House has balked at some of its proposals.

CNHI obtained a copy of the PEW analysis and an email sent to Republican leaders in both chambers of the General Assembly as well as the co-chairs of the Public Pension Oversight Board. The email was from Bryanna Carroll, Director of Governmental Affairs for KLC, who subsequently confirmed to CNHI that she sent it.

The analysis found that contributions to the Kentucky Retirement System plans “closely track” the 2013 projections.

It points out that the 2013 reforms removed the new hybrid cash plan from the umbrella of the inviolable contract, the statutory guarantee of benefits accrued by previous employees and retirees, and eliminates automatic and unfunded COLAs.

PEW also addresses a bill sponsored by Sen. Joe Bowen, R-Owensboro, which would have separated the County Employment Retirement System covering local government employees from KRS.

The bill was supported by KLC, Kentucky Association of Counties and local officials but Bowen withdrew the bill at Bevin’s request.

PEW takes no position on the question of separation but it says other aspects of the bill represent “best practices.” Those include requiring 20-year, forward-looking analyses of any changes to the pension system, disclosure of investment fees, stress testing and fully pre-funding any future COLAs.

The analysis then looks at the proposed changes in the draft bill favored by Bevin and says more conservative actuarial assumptions already adopted by KRS will cost more in the short-term but save money over a longer period of time.

But that will have “an immediate impact on (state) budgets — increasing pension contributions needed by KRS by over $800 million.” That will pay off the unfunded liability faster, PEW says, but require higher contributions in the short term.

PEW concludes that the 2013 changes “are working and on track” while the changes proposed in the October draft bill will “likely require a legal review and could result in insufficient retirement savings for employees.”

“The Pew Charitable Trust is a well-respected, nonpartisan organization, and we’re grateful they are willing to provide an unbiased view of the proposed pension changes,” said Carroll from KLC.

“It’s important to recognize the reforms in Senate Bill 2, passed in 2013, stabilized the County Employees Retirement System and the Pew Center analysis continues to show those reforms are the best structural path forward for CERS,” Carroll said.

She said KLC agrees with PEW’s opinion that staying the course is the right action and is pleased the report found “best practices” in Bowen’s bill that would separate CERS from the other systems.

“That is one of many reasons why we continue to advocate for CERS separation,” Carroll said.

Ronnie Ellis writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow him on Twitter @cnhifrankfort.

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