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Lawmakers hear from workers on pensions

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Higdon: CERS separation won’t happen in special session

By Randy Patrick

Nelson County’s state legislators didn’t offer a solution to Kentucky’s public pension crisis, but they tried to ease the minds of teachers and other public employees by telling them what probably won’t happen.

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The two-hour town hall at Bardstown High School by Sen. Jimmy Higdon and Rep. Chad McCoy, Republicans who represent Nelson County, was an opportunity for people to ask questions and share concerns prior to a special session on pensions Gov. Matt Bevin may call this fall.

Kentucky’s pension debt, including retiree health plans, is about $40 billion in debt, and controversial proposals by consulting group PFM has many concerned. They include repealing or suspending cost-of-living adjustments, moving workers from defined benefit into 401(k) plans, increasing the age of retirement with full benefits to 65, and taking away teachers’ unused sick days.

“They’re only recommendations,” Higdon assured his audience, and some of them have little chance of becoming part of whatever bill lawmakers put together.

For example: “We will not be requiring people to work to age 65. That won’t happen,” Higdon said.

McCoy said another idea that won’t happen is “clawbacks.” PFM suggested taking back cost of living adjustments for current retirees to 1996. There is no way that will happen, he said.

Inviolable contract

Pamela Waldridge, a public assistance program specialist, said she was told her pension was an “inviolable contract” and that it “can’t be changed.”

“The commitment has been that we will abide by the promises made to you in the inviolable contract,” Higdon said.

He added, however, that some benefits, such as health insurance, are not part of the contract.

Also, some are not under lawmakers’ purview. Sick days, for example, are controlled by administrative regulations, not legislation.

In response to a question by a reporter, McCoy and Higdon said putting new hires in a defined contributions plan like a 401(k) must be considered.

Most are already in a “hybrid” plan, which is more like a defined contributions than a defined benefits plan, Higdon added.

The senator said one concern is that lawmakers will ramrod through whatever bill they come up with using an “emergency clause,” which means it would be signed by the governor as soon as it passes and go into effect immediately, leaving workers no time to consider whether it would be advantageous for them to retire before the changes occur.

“I promise you, there will not be an emergency clause,” he said, adding that workers will have at least 60 days to assess their situation and make a decision.

“Nobody in the House is talking about that,” McCoy said.

One worker said 60 days isn’t enough time to get a meeting with a pension system representative to go over it and preferred having it take effect at the end of next June, which both Higdon and McCoy prefer.

One PFM suggestion Higdon said he likes would allow those who work for the state a few years and can’t collect their benefits until age 65 to “cash out.” The buyouts would require a bond issue, but it would be attractive to those workers and help the state.

Talk of taxes

Mike Vittitow, an employee of Bardstown’s municipal cable service, asked why the legislature couldn’t come up with more money to fund the pensions by allowing medical marijuana and expanded gambling and taxing those, or raising taxes on cigarettes or sodas.

Higdon said he supports medical marijuana, but because it’s medicine, which is exempt from sales taxes, it wouldn’t generate a lot of revenue. As for expanded gaming, the horse industry, which was pushing that, isn’t anymore because they’re doing well with instant racing machines at the tracks.

Higdon said tax reform may be considered, but not as part of the pension solution. The idea is to solve the pension problem, then do the budget, and then concentrate on tax reform. Legislators have to know how much money they need before proposing taxes.

McCoy agreed with that approach.

“The pension, if really properly funded and working in the right way, is not going to require massive tax increases. So I think we need to fix it first to get an idea of what we need to make it go forward,” McCoy said.

Waldridge asked the legislators how it’s possible that they don’t know “how big the hole is,” and implored them to consider new revenue as part of the solution.

Legislators and past governors have been criticized for not putting enough money into the system, but the reasons for the shortfall are complicated. Reasons cited include increasing health insurance costs, employees living and working longer, underperforming investments, fewer workers in the system and unfunded cost-of-living adjustments.

Separating CERS

The town hall was prompted by discussions Bardstown Mayor Dick Heaton had with McCoy and Higdon about a proposal the Kentucky League of Cities and the Kentucky Association of Counties are pushing to separate the County Employee Retirement System from the Kentucky Retirement Systems.

Higdon said he is “trying to get to yes,” on that proposal, but has some concerns.

In any event, he said, even if CERS separates, its unfunded liability is still there and must be paid.

CERS is about 58 percent funded. Twenty years ago, it was about 160 percent funded, he said.

The senator said legislators may take up the proposal, but he doesn’t expect it to be part of the pension bill.

County Judge-Executive Dean Watts accepted that course.

“Let’s make ourselves solvent, and then we can deal with that issue going forward,” he said.

Laurie Snellen, a social worker, said she was grateful for Higdon and McCoy having the public forum to answer questions.

So was Waldridge.

“They don’t know all the answers yet, but they did make me feel a lot better,” she said. “I appreciate them being honest with us and doing this.”

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