Kentucky's plan to fix its retirement system is drawing positive reviews from the think-tank types at The Pew Charitable Trusts.
The state has been struggling with its pension obligations since at least 2002, when it realized it was bogged down with $26 billion in pension debt.
According to Pew, the state's bipartisan reform effort this year resulted in a "fair and effective" retirement system for both employees and taxpayers. The state legislature passed a bill that is projected to improve the fiscal health of the pension system by billions of dollars, ensuring that state and local governments can keep their promises to Kentucky's public workers, according to The Pew report.
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The reforms included a new retirement plan for anyone hired after Jan. 1, 2014, a requirement that future cost-of-living adjustments be paid for before they are given, and a plan that commits the Legislature to full funding of pension promises in future years. Accompanying legislation would raise $100 million annually to help pay the estimated $131 million a year needed to make up the gap in Kentucky's pension contribution.
Kentucky's pension plans were only 30 percent funded in 2012 — one of the worst-funded retirement systems in the country. The total unfunded liability in the pension plans covering employees other than teachers was $13.9 billion — more than the tax revenue the state collected that year. The state was forced to make some tough decisions to save basic public services, worker benefits and the overall fiscal health of the state.
So why was Kentucky's pension system in such horrible shape? The state made what turned out to be some bad policy choices, including not making the required pension system contributions and not paying for benefit increases, which led to almost $14 billion in pension debt just for the Kentucky Employees Retirement System, which covers state government workers.
According to Pew, the state Legislature created a pensions task force in early 2012 to investigate the state's pension challenges and identify a path forward. The group sought input from public employees, taxpayers, business groups and local governments over a six-month span.
The task force's report eventually became the legislation that passed the state Senate and House and was signed into law by Gov. Steve Beshear on April 4.
Pew said in its report that it is now up to the state's policymakers to enact and follow the pension reforms moving forward or "no reform effort will ever be successful."
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