September 14, 2014

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Sen. Katie Stine reviews Kentucky congressional week

The 2013 General Assembly session has now thankfully ended.  The most important piece of legislation that passed was Senate Bill 2, the public employee pension reform bill.

The public employee pension system is more than $30 billion in the red. Experts predicted it would run out of cash in five years with the commonwealth forced to go to a “pay as you go” system on pension benefits. The Senate has been ringing the alarm on this issue for several years now and I was very pleased that a bipartisan solution was finally agreed upon. Senate Bill 2 will establish a new-style retirement plan for those entering the system next year and require pre-funding of any future cost-of-living adjustments for retirees. Under the bill, pension benefits for new hires would be calculated in a hybrid ‘shared-risk’ plan similar to a 401(k) that will guarantee a 4% annual return on investment. Further, legislators and judges would be treated the same as regular state employees. The General Assembly is required to fund 100% of the actuarially required contribution (ARC). The new cash-balance plan is more predictable and sustainable than the current defined benefit plan without carrying as much risk for employees as a traditional 401(k). Besides saving the state $10 billion over 20 years, SB2 protects the retirement of current employees and retirees as well as the tax-payers’ financial exposure.  The bill will have no effect on teachers’ retirement, nor will it apply to current employees and retirees except to stabilize their current plan.