The Kentucky Legislature passed a comprehensive pension reform bill Tuesday night that will create a cash balance plan for members of the $14 billion Kentucky Retirement Systems hired after Jan. 1, 2014.
The House and Senate overwhelmingly passed the bill on the last day of the legislative session as well as a companion bill that provides additional revenue sources aimed at allowing the state to fully fund the actuarially required contribution by fiscal year 2015. The increased cost to fully fund the ARC is estimated at $100 million per year from the general fund, according to a news release from Gov. Steve Beshear.
The bills are being sent to Mr. Beshear, who is expected to sign them after having negotiated with legislative leaders over the last few weeks.
Employee cash balance accounts would guarantee a 4% annual return with the accounts receiving 75% of returns above 4%.
The bill also requires cost-of-living adjustments to be fully prefunded by the General Assembly in the year it is provided.
The unfunded liability of Frankfort-based KRS is about $18 billion, according to the news release. It is one of the worst-funded plans in the country.
In February, S&P revised Kentucky's financial outlook to negative from stable, citing the unfunded pension liability as a primary reason, and last year, Moody's Investor Service downgraded Kentucky's bonds to Aa2 from Aa3 and maintained a negative outlook, citing in part the growing pension liability.