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Pension Funds

Kentucky governor, GOP pension reform recommendations include shifting some workers to DC plans

Kentucky Gov. Matt Bevin and Republican legislative leaders unveiled their recommendations to reform Kentucky's pension systems, which include shifting some future workers and eventually some active workers into defined contribution plans.

These recommendations come nearly two months after PFM Group released its own set of reform recommendations.

Under the Republicans' plan released Wednesday, future non-hazardous state and local employees, including judges and legislators and teachers, would be enrolled in defined contribution plans. Current non-hazardous workers will continue in the current defined benefit program until they are eligible for an unreduced retirement benefit. After that time, they would be moved to defined contribution plans.

Cash balance plans would be maintained for current and future hazardous employees, such as police officers and firefighters.

The plan's other recommendations include suspending future cost-of-living adjustments for currently retired teachers for five years. COLAs for teachers who have yet to retire would begin five years after retirement.

Regarding pension contributions, the plan calls for the full payment of the actuarially required employer contribution and "a new funding formula that mandates hundreds of millions more into every retirement plan," according to a news release from Mr. Bevin's office. A spokesman for Mr. Bevin could not immediately be reached for further information.

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, face at least $64 billion in unfunded liabilities combined, making it the worst funded system in the nation, the news release said.

Within the Kentucky Retirement Systems, the Kentucky Employee Retirement System non-hazardous is predicted to become insolvent by 2022 if no changes are made, the release added.

The governor's recommendations require the approval of the Kentucky Legislature, which is expected to convene in the coming weeks. ​

PFM was hired by Kentucky's Finance and Administration Cabinet last year to provide a performance and best practices analysis of the state's pension systems. PFM's recommendations, released in August, included shifting current and future non-hazardous workers into defined contribution plans and taking back some or all of the cost-of-living adjustments for all workers awarded between 1996 and 2012.

Advocacy group Kentucky Government Retirees issued a statement Wednesday on its Facebook page opposing the Republicans' recommendations. "Proposals to arbitrarily limit the accrual of benefits betray the pension promise and violate the contract rights of Kentucky Retirement Systems members," the group said. "We will be conveying our opposition in our outreach to legislators throughout the review process. We hope that, in anticipation of the 2018 session, leadership will soon begin seriously considering revenue measures that will help address pension funding while upholding the legally secured rights of KRS members."