By Sen. Danny Carroll
R-Paducah
Before continuing, in an effort to be fully transparent, I want to inform readers that I am a retired police officer and a member of the County Employee Retirement System (CERS).
Bringing about a flurry of facts and a storm of misconceptions, Kentucky’s pension crisis has become one of the most dominating news stories in recent months. One thing is for certain: if our state pensions are not addressed in the very near future, we will face huge cuts in state funding. Education, Medicaid, and other government services would likely be affected—a risk our state is not in a position to take.
In the early 2000s Kentucky’s pensions were in a healthy condition. While there was not one single cause for the pensions’ downhill slide, one major factor was erroneous actuarial assumptions made by past board members of these systems. Sadly, it seems past assumptions were often manipulated by the prior pension board members in efforts to minimize the “cost” of pensions to the state budget. Unreasonably high investment expectations were made and funding was based on inaccurate payroll numbers. The result was to provide a false sense of security and justify smaller-than-necessary contributions to the pension plans.
The General Assembly took steps toward reforming the Kentucky Employees Retirement Systems (KERS) and the County Employee Retirement System (CERS) in 2013, but the Kentucky Teachers Retirement System (KTRS) was not included in those measures and the problem continued to grow.
This is not a partisan issue. In 2016 the General Assembly — Republicans and Democrats — made a commitment to address the issue. This started with a dedication of an additional $1.2 billion annually to help with the shortfalls in KERS and KTRS as well as establishing a permanent pension fund. We also hired a third party organization, the PFM Group, to investigate the state of our pension systems.
On Monday, Aug. 28, the PFM Group gave its final presentation to the General Assembly’s Public Pension Oversight Board, offering its recommendations on how to best address the problem. I, along with my colleagues in the General Assembly and Governor Bevin, will take PFM Group’s recommendations and craft a plan that will be implemented in a special session. It is important for everyone to remember that this report simply contains recommendations and the fiscal impact the recommendations would have if implemented. It is not law or even proposed legislation. The legislature has the ability to implement any recommendation, dismiss it, or adjust it. I look at the report as a menu of actions the governor and legislature can pull from to reach the designated amount of savings required today, tomorrow, and on into the future to help return the systems to solvency.
As the legislature considers PFM Group’s recommendations, it is crucial we make decisions that protect those already retired, especially senior citizens, to the greatest extent, then those who are close to retirement, and on down the line. It is also crucial that we honor the inviolable contract.
Pension members, all taxpayers, and government need to share in the responsibility of addressing the crisis so no one particular group shoulders it on their own. We hear the term “We are Kentucky” often these days and now is the time we all pull together and show the rest of the nation what this means. Together we can work through this crisis and then refocus on restoring our great Commonwealth to growth and prosperity.
One other aspect of the pension system currently under consideration is the possible separation of the County Employee Retirement System (CERS) from the Kentucky Retirement System (KRS). Since CERS is primarily funded by local governments and not the state, the overall impact of the separation to the KRS should be minimal. I am supportive of this separation as long as the impact to the overall system is determined to be, in fact, very minimal. Also, I would require that a stipulation be attached that would require certain reform measures be taken should the funded level drop below a predetermined level. We simply cannot take any risk that might put the state on the hook should CERS decline further in the future.
I realize this is a very complicated issue and I hope the information provided helps to clarify some aspects of the issue. I ask your patience as the legislature works through each facet of the recommendations provided by PFM. I also welcome your questions and comments on this issue or any other public policy issue. Please feel free to call me toll-free at 1-800-372-7181 or email me at danny.carroll@lrc.ky.gov. You can also review the Legislature’s work online at www.lrc.ky.gov.