By RONNIE ELLIS
CNHI News Service
One day after Standard & Poor’s Ratings Services downgraded Kentucky’s fiscal outlook because of its unfunded pension liabilities, a coalition of business groups used the news Friday to press lawmakers to pass a package of pension reforms.
S&P announced the downward revision, from stable to negative, on Thursday, and at the same time affirmed its AA-minus credit rating for the state’s credit rating.
“The outlook revision reflects our concern over pension funded levels, which have declined and are likely to continue declining due to lower-than-actuarially required funding of pension liabilities and budgetary pressures associated with funding post-retirement benefits,” S&P credit analyst John Sugden said in a press release.
The Kentucky Employee Retirement System faces unfunded liabilities of $18 billion. When the state’s other major pension systems for teachers, county employees and state police are included the unfunded liability grows to more than $30 billion.
The problem arose over time as lawmakers in flush years increased benefits and then in bad economic times deferred making annual payments into the system. At the same time, the economic downturn had a negative effect on the systems’ investment returns.
A legislative pension reform task force, working with help from the PEW Center on the States, recommends making full payments to the system beginning with next year’s budget, an amount estimated at around $327 million in the first year. The task force also recommended ending cost of living adjustments and moving new hires into a hybrid, cash-balance plan while retaining the current defined benefits plan for existing employees and retirees. The recommendations apply only to the KERS plan.
While the Republican-led Senate has gotten behind the proposals, Gov. Steve Beshear and Democratic Speaker of the House say they support the plan generally but have questioned where the money will come from.
Employee groups oppose the changes for new hires.
On Friday morning, the Kentucky Business Coalition for Pension Reform, representing 50 businesses and organizations, met with Senate President Robert Stivers, R-Manchester, and Majority Leader Damon Thayer, R-Georgetown, urging them to pass all the recommended reforms. Thayer co-chaired the task force and said he will sponsor a bill incorporating its recommendations.
Kentucky Chamber of Commerce President David Adkisson, who spoke for the coalition at Friday’s press conference, said lawmakers must act right away.
“If we don’t fix this pension problem in the 2013 General Assembly . . . we will be so far in debt it will be almost impossible to dig our way out,” he said.
Coalition groups included local chambers of commerce, the Kentucky Association of Manufacturers, the National Federation of Independent Businesses, Coal Operators and Associates and others. They all signed a letter demanded lawmakers to pass the reforms in the current session.
Associated General Contractors Board President David Dean said failure to act and the downgrading of Kentucky’s bond ratings will cost taxpayers more for such projects as new schools, water and sewer improvements and infrastructure needs.
Adkisson said failure to act will eventually lead to higher taxes and fewer resources for education and economic development.
Stivers and Thayer said earlier this week they believe there are sufficient votes in the Senate to pass the measures recommended by the task force. Both have said Republican Senators would prefer a more aggressive approach — they have supported moving new employees into 401-K type plans — but the task force recommendations represent a bi-partisan compromise which has a legitimate chance to pass.
Thayer said he expects to file the bill Tuesday when the legislature reconvenes and expects the Senate to pass it either late next week or early the following week. The fate of the bill is less certain in the Democratic-controlled House.
On Wednesday, the Kentucky Public Pension Coalition, 19 groups like AARP, KEA retirees, AFL-CIO, and various employee representatives, criticized the recommendations which would change the retirement plans for new employees and complained they haven’t been part of the negotiations on how to fix the problem.
Steve Barger, spokesperson and coordinator for the group, said employees agree on the need for full funding of the system but “want to be at the table and help reach a solution.”
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at email@example.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.