Glasgow Daily Times, Glasgow, KY

November 29, 2012

RONNIE ELLIS: ‘Compromise’ sought on pension reform


FRANKFORT — The two co-chairs of a pension reform task force said their recommendations represent “a compromise which we think can pass the legislature.”

But that doesn’t mean it will be easy.

The task force, co-chaired by Rep. Mike Cherry, D-Princeton, and Sen. Damon Thayer, R-Georgetown, made several recommendations, but the key one is that lawmakers begin with the next budget making the full annually required contribution (ARC) to the funds.

That’s something just north of $300 million and that’s the recommendation that lawmakers are likely to find the most difficult.

As Cherry and Thayer have repeatedly said, there were other ideas by members of the task force. Thursday Cherry told the Appropriations and Revenue Committee some people wanted to bond part of the unfunded liability, others wanted to test the “inviolable contract,” the legal language that promises a guaranteed level of benefits to current retirees and employees.

But he said the group sought “consensus, compromise and bi-partisanship.”

“We think (the final compromise recommendations) can pass the scrutiny of the legislative process,” Cherry said.

But earlier Thursday, Stumbo seemed hesitant.

“I think something will pass,” Stumbo said. “A lot of the things the task force recommended were not that controversial when you really get down to it. But you’ve got to figure out a way to fund it. So where do you get the money to fully fund the ARC? Given the fact that state revenues are where there are, that elementary and secondary education hasn’t received any new funding in the past three sessions, where do we go to get that money?”

Senate A&R Chairman Bob Leeper, I-Paducah, said the growing unfunded liability of the state pension systems has to be addressed, but he wouldn’t say he would accept the task force recommendations.

“I think the issue has to be dealt with, whether it’s their proposal or another one,” Leeper said.

And while Thayer has said he will sponsor a bill based on the task force recommendations, but he said he expects some lawmakers to try to amend the bill.

In the past, the Republican Senate has passed legislation to place new employees into a defined contribution plan, something similar to a 401-K plan but the Democratic House wouldn’t go along.

Kentucky’s State Employee Retirement System has about $12 billion in unfunded liabilities. But the KERS system is just one part of the state’s pension system. When systems for state police, county employees and teachers are combined, the total unfunded liability is more than $30 billion.

For years the legislature failed to appropriate the full amount of the ARC, determined by actuaries. Combined with lower than forecast investment returns as the stock market fell during the recession, the various funds don’t have enough money to meet their obligations.

In addition to fully funding the ARC, the task force wants to end cost of living adjustments and place new employees, lawmakers and judges into a “hybrid cash balance” plan. Employees would make the same 6 percent contribution and would be guaranteed a minimum return of 4 percent. Anything beyond that would be split — 75 percent for the employees and 25 percent retained by the pension funds to guard against years in which investments don’t produce a 4 percent return.

Upon retirement employees could take the cash value of their retirement and convert it into a lifetime annuity.

The budget committee also heard an update on state collection of past-due taxes during a tax amnesty period which ends Friday.

Revenue Commissioner Thomas Miller told the committee he is “very, very confident we can hit our estimated target” of about $55 million in collections.

The two-month amnesty period permitted those behind in their state taxes to make good without penalties or fines and by paying a reduced interest rate. But those who don’t pay up by Friday will face an extra 2 percent interest rate on top of the present 6 percent. They’ll also be charged higher collection fees and penalties.

Miller said as of Wednesday the state had received 15,000 applications for amnesty and had approved about 1,400. About 6,000 applications were by individuals while 9,000 businesses applied.

The last time the state offered an amnesty program, it collected about $40 million in back taxes.