Kentucky Senator Joe Bowen Talks About Kentucky's Pension Problems

    “The greatest challenge that we’ve seen in the last half century,” that’s how Kentucky Senator Joe Bowen (R-Owensboro) describes the state’s current pension situation. Bowen sat down with the Kentucky League of Cities to talk about the unfunded liability Kentucky’s pension system is facing, as well as separation of the County Employees Retirement System (CERS) from the Kentucky Retirement Systems (KRS) and about the possibility of a special session later this year. Bowen talked about various factors that caused Kentucky’s pension system to be the worst funded in the country and he detailed steps he believes the state can take to improve the situation. In the end, Senator Bowen said: “we need to start looking out the windshield as opposed to looking out the rearview mirror” if we are to begin the process of making Kentucky’s pension system viable.

    Looking forward means finding the money to shore up the two troubled pension systems, KERS and the State Police Pension System, something Senator Bowen calls the greatest challenge before lawmakers. “We can’t go to Joe Taxpayer and ask him to pay more in taxes, particularly if he’s not getting a pension himself and we’re asking him to pay more taxes so someone else can have a pension… that’s not fair,” said Bowen. He wants to craft a fair tax code that the senator says “can create more revenue and yet not encumber those that are currently paying the bill.” Senator Bowen also wants the state to look for ways to save money on current expenditures and he continues to believe separating CERS from KRS will help the process by letting lawmakers focus on the cash-strapped Kentucky Employees Retirement System Non-hazardous plan (KERS-NH).

    Separation of CERS from KRS is what Senator Bowen calls “a good move.” He says the facts are simple, “CERS is self-sufficient, self-sustaining… we appropriate no money for the CERS plan. As a matter of a fact, the CERS plan, some would argue, subsidizes the KRS plans,” said Senator Bowen. He then pointed out, “two-thirds of the people covered under the KRS plan are actually CERS employees and 75 percent of the assets in the KRS plan are actually CERS assets so it really makes no sense that CERS should be part of this problem.” Senator Bowen believes allowing CERS to go on its separate way “will give us the opportunity to have the laser focus on the KRS plan and in particular the KERS-NH, which is the real plan that is in real peril, the plan that is only 13 percent funded. That will give us the opportunity as legislators and the executive branch to put that laser focus on that one plan and shore it up without being encumbered by including CERS and all of those employees along the way.”

     While Senator Bowen supports CERS separating without changes to its structure, he believes the plans that will remain with the Kentucky Retirement Systems must see some structural changes. Any changes made, however, would have to be within the framework of the inviolable contract currently in place. Senator Bowen reminds KRS members the contract is their insurance policy. He does not expect any changes for KRS members already drawing a retirement and assures current employees any changes made outside the inviolable contract would not be catastrophic. The senator does say, however, that things could look different for folks still to be hired in the future. “That’s where we’re going to have to make the most comprehensive changes,” said Bowen.

    The governor is expected to call lawmakers back to Frankfort later this year to enact some of those changes. A special session is expected this fall to deal with the state’s $40 billion pension liability and possible changes in the state’s tax codes. The governor said earlier this week he will not call lawmakers before August 15. Senator Bowen expects separation of CERS from KRS to be among the topics discussed during the special session. “The governor assured me it would be part of a broader conversation when we talk about pension reform when we talk about tax reform, that we will take up this idea of separating CERS from the KRS system,” said Senator Bowen. “I’m looking forward to that. I do believe it will be part of a bigger conversation and I will advocate for that.”

While lawmakers debate the steps that need to be taken to fix the state’s pension system, questions are also being asked as to how Kentucky ended up with the worst-funded pension system in the country. Senator Bowen says there’s a lot of blame for various groups to share. He blames faulty assumptions, a pension board that was not willing to question assumptions provided to it by actuaries, an administration willing to turn a blind eye to the problem and a legislature that was forced to deal with the best information it was provided. “We had assumptions that were in no way going to provide for the funding that we needed to correct this problem,” said Senator Bowen. “A lot of people want to place the blame on appropriations from the general assembly as the main cause for causing this unfunded liability but that’s only part of the problem.”

When it comes to fixing the problem, Senator Bowen points to actions already taken by the legislature. A 2013 reform created a hybrid cash balance plan for new hires and the legislature appropriated more money than ever last year. Still, the senator warns that lawmakers called for a special session this year will need to adopt a multifaceted approach to shoring up the pension system. “We’re going to have to make some structural changes, we’re going to have to find some efficiencies here in Frankfort that are going to provide for some additional revenue, we’re going to have to look at the tax code,” said Bowen. “If we do that, then we’ll be able to realize some additional revenue which would obviously go to shore up our pension liability.” 

The senator is inviting the public to share ideas on fixing the state’s pension problems. The Public Pension Oversight Board, which Bowen co-chairs, will hear from the PFM Group in July. The state hired PFM to study the state’s pension systems. The July presentation will be PFM’s third and final report. Senator Bowen plans for lawmakers to hear from the public through June, before the PFM presentation. “Basically an open forum for those that want to speak for or against what’s going on, those that want to give suggestions of how we might climb out of this,” said Bowen. He says the forum will give “the public the opportunity that they deserve to have to provide input into where we go from here.”