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Report details radical public pension changes in Kentucky

Posted August 28

— A state-funded analysis of Kentucky's troubled public pension system calls for pay cuts for some retired workers while freezing the benefits of most everyone else as part of a radical plan to pull one of the country's worst-funded systems from the brink of insolvency.

State taxpayers are at least $33 billion short of what's needed to pay promised retirement benefits to state workers, police officers, firefighters and public school teachers over the next three decades. That makes it one of the worst public pension plans in the country and a case study for other state-funded plans struggling to recover from the losses of the Great Recession.

Monday's report was the first time the public got a peek at what is expected to be the foundation of legislation from an upcoming special session of the state legislature, where Republican lawmakers now have a super majority. State workers and retirees did not like what they saw. PFM Group Consulting recommended eliminating 16 years' worth of cost-of-living raises for retirees, meaning anyone who retired before 2012 would get less money from the state each month. Retired public school teachers would see their annual cost of living adjustments suspended.

Retiree Jack Ellis said it would cost him about 30 percent of his monthly income.

"It's ridiculous," he said. "There will be court cases for years."

Kentucky's retirement system guarantees workers a monthly retirement check when they retire. How big of a check depends on how long they work and how much money they make. The report recommends freezing the benefits state workers have earned up to this point. Going forward, the state would put money into a savings account for workers who would then live off that account once they retire.

The recommendations would raise the retirement age to 65 for most people. Police officers and firefighters have been allowed to retire after 25 years on the job no matter how old they are given the dangerous natures of their profession. But under these recommendations, first responders could retire with full benefits only at age 60. If they retire earlier than that, they'd have smaller retirement checks.

The plan would also impact local school districts by moving teachers back into the federal Social Security system, requiring school boards to pay $10 million a year to move teachers back into the federal Social Security system.

But the alternative, state officials say, is out-of-control costs that threaten the solvency of the retirement system and all of state government. State Budget Director John Chilton said lawmakers have to come up with an extra $1 billion per year to keep the pension systems solvent. That means most state agencies would have to cut their budgets by 34 percent.

The consultants say their plan would eventually save taxpayers more than $1 billion a year if all of the recommendations were adopted and other assumptions are met. What makes this plan different is it impacts current retirees and state workers, while changes mostly impacted future hires.

"Modifying benefits for future hires only helps you stop the hole from getting deeper. It doesn't help you climb up and out," said Michael Nadol with PFM Group Consulting. "It's going to take at least 30 years to satisfy these obligations and it is going to be painful in the interim."

State lawmakers were quick to point out they have not adopted any of the recommendations. House Speaker Jeff Hoover urged people to "to pay attention to what we actually propose for an upcoming special session." The governor planned to answer questions from nervous state workers on his Facebook page Monday night, saying in a news release "we were elected to fix this problem and we will."

But some retirees, like Eva-Smith Carroll, are prepared for the worst. She attended Monday's hearing of the Public Pension Oversight Board wearing a T-shirt declaring her to be a member of the "pitchfork and torch brigade."

"It's outrageous and it's illegal and they need to come up with a better solution," she said.

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