Recommendations include shifting workers to DC, reducing retiree benefits, COLA changes and moving to single investment board
Shifting certain current and future workers into defined contribution plans and reducing benefits for retirees are among the reform recommendations for Kentucky's pension systems issued Monday by PFM Consulting Group.
Future and current non-hazardous state and local employees, including judges and legislators, would be enrolled in defined contribution plans, while cash balance plans would be continued for hazardous employees such as police officers and firefighters, although those employees could no longer retire before 55 or 60, depending on what tier they are in, and receive full benefits. Currently, those employees can retire after 25 years of service at any age and receive full benefits. Employees hired after Jan. 1, 2014, participate in a cash balance plan.
Future teachers would also be enrolled in a defined contribution plan and Social Security, which Kentucky teachers don't currently participate in. Current teachers would continue to participate in a defined benefit plan although a minimum retirement age of 65 would be established.
PFM was hired by Kentucky's finance and administration cabinet last year to provide a performance and best practices analysis of the $17 billion Kentucky Teachers' Retirement System, $11.5 billion Kentucky Retirement Systems and $327 million Kentucky Judicial Form Retirement System, all based in Frankfort. Two earlier reports from PFM focused on factors that led to the state's more than $33 billion pension shortfall.
Other recommendations in Monday's report included cost-of-living adjustment changes for current workers and retirees, changes to how unfunded liabilities are paid off, reduced assumed rates of return, payment of the full recommended employer contribution, and a single investment board to manage all of the state retirement assets.
The recommended COLA changes include taking back some or all of the cost-of-living adjustments for all workers awarded between 1996 and 2012 and suspending future COLAs for teachers until the Kentucky Teachers' Retirement System reaches 90% funding.
All underlying KRS plans and KTRS are less than 60% funded.
"This latest report from PFM further confirms the need for urgency as we resolve Kentucky's pension crisis," said Gov. Matt Bevin in a statement Monday. "We will not kick the can down the road any longer. We were elected to fix this problem and we will. The fiscal abuse of Kentucky's retirement systems is over."
On the flip side, advocacy group Kentucky Government Retirees issued a statement on its Facebook page opposing the benefit cuts for retirees.
"We are shocked and disappointed that the PFM report failed to include even a superficial analysis of the contract rights of Kentucky Retirement Systems retirees. We will vigorously oppose any efforts to pass a bill that claws back cost-of-living adjustments already earned and already being paid to retiree members. Such a reduction in earned benefits is an overt betrayal of the pension promise and a clear violation of the inviolable contract."
The full report is available on the state's website.
PFM's recommendations require the approval of the Kentucky Legislature, which is expected to convene this fall, said Dave Eager, interim executive director at KRS.
Mr. Eager said that six task forces made up of KRS staff were formed by the retirement system Tuesday to look at all elements of PFM's recommendations.
Gary Harbin, executive secretary at KTRS, could not immediately be reached for comment.