Kentucky pension consultant says to freeze benefits, move workers to 401(k)-style plans
A consultant hired by Gov. Matt Bevin’s administration recommends fixing Kentucky’s pension debts of at least $35 billion by, among other measures, freezing benefits and moving state and local government workers into less secure, 401(k)-style plans.
FRANKFORT, Ky. (WDRB) – A consultant hired by Gov. Matt Bevin’s administration recommends fixing Kentucky’s pension debts of at least $35 billion by, among other measures, freezing benefits and moving state and local government workers into less secure, 401(k)-style plans.
The recommendations of the PFM Group were unveiled at a meeting of the legislature’s Public Pension Oversight Board on Monday.
Lawmakers will consider acting on the options during a special session Bevin plans to call later this year aimed at fixing the pension problem.
“We will not kick the can down the road any longer. We were elected to fix this problem and we will,” Bevin said in a statement following the meeting.
Kentucky maintains eight pension providing lifetime retirement benefits to different types of state and local government workers – from police to teachers to state bureaucrats – and the PFM Group’s recommendations vary according to the plan and working status.
For the biggest and worst-funded plan – called KERS Non-hazardous – PFM Group recommends freezing benefits for current workers and giving them a 401(k)-style “defined contribution” plan for their remaining years of service.
Employees could also elect to receive their accumulated benefit in a lump-sum payment that would be rolled into an individual retirement account, allowing the state to shift investment risks off its books.
For public school teachers, the consultant recommends giving new hires access to the Social Security system – in which Kentucky teachers don’t currently participate – along with a 401(k)-style plan.
Current teachers would continue to be promised pensions, but they would have to work until age 65 to receive an unreduced level of benefits upon retirement. Today, teachers can retire with full benefits after 27 years of service regardless of their age.
Mike Nadol, managing director of PFM Group, told lawmakers the changes would be “unpleasant” and “disliked and criticized by different stakeholders” but ultimately provide “a more modern and flexible approach to your retirement benefits.”
“Doing nothing is perhaps the worst path you could take,” he said.
Kentucky's pension debt -- conservatively estimated to be as much as $80 billion -- grew steadily over the 2000s as lawmakers routinely did not fund the plans at necessary levels in the state budgeting process.
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