Pension Reform Compromise Passes on Last Legislative Day

Updated March 27, 2013

Pension Reform Compromise Passes on Last Legislative Day
KLC's Top Legislative Priority Crosses Finish Line

Members of the Kentucky General Assembly voted on Tuesday evening to pass comprehensive pension reform.  The 2013 Regular Session marked the sixth consecutive legislative session that retirement reform was the top legislative priority for the Kentucky League of Cities.  This landmark compromise is projected to save taxpayer's approximately $10 billion over the next 10 years, and will avert a looming fiscal crisis as the state's pension system faces $33 billion in unfunded pension liabilities. Without comprehensive pension reform, the Kentucky Employee Retirement System (KERS) was projected to be insolvent within the next four years.
  
Lawmakers reached a compromise on the last legislative day that included an extensively debated funding mechanism for KERS' unfunded pension liability, and the hybrid cash balance plan for future hires.  Other provisions supported by the League were also included in the compromise to Senate Bill 2, including exempting bona fide promotions and career advancements from anti-spiking provisions that address the abuse of the systems, establishing an additional representative on the Kentucky Retirement System (KRS) Board of Trustees to be nominated by cities, and pre-funding future cost of living adjustments for retirees.

The compromise on SB 2 also ensures that Kentucky cities through the County Employee Retirement System (CERS) will have long-term relief by creating more predictable and stable contribution rates for employers, while sharing the risk with future employees.  SB 2 also offers much needed short-term rate relief by resetting the amortization period to 30 years, which will lower rates for employers in CERS.

The recommendations by the Public Pension Task Force embodied in the original Senate Bill 2 called for fully funding the actuarially required contribution (ARC) to KERS.  Those provisions were maintained in the compromise to SB 2.  However, throughout the 2013 legislative session, House leaders called for additional funding dedicated to paying down the unfunded pension liabilities in KERS.  HB 440 became the funding compromise agreed upon by Senate and House leaders.  This legislation reduces a small personal income tax credit and establishes a trade-in credit for new cars, while closing some tax loopholes and increasing tax compliance efforts. HB 440 is projected to raise $96 million in Fiscal Year 2015 and $99 million in Fiscal Year 2016.  Both measures now make their way to Governor Beshear where they await his signature.

The League and our entire legislative team would like to thank the members of the Kentucky General Assembly that voted to support this landmark legislation and KLC's top legislative priority.  We would also like to thank those KLC member cities, mayors, city council members, and city commissioners that contacted your legislators, and urged them to enact comprehensive pension reform during the 2013 Regular Session.  We could not have accomplished pension reform without your efforts.

Watch KLC emails and the website for more details about HB 440 and SB 2.

Please contact J.D. Chaney at 1-800-876-4552 if you have any additional questions.