An independent consulting group says Kentucky lawmakers should take away some cost-of-living raises awarded to state retirees over the past 20 years as part of a strategy to keep the retirement systems solvent.
The PFM Group told the Public Pension Oversight Board that lawmakers need to make dramatic changes to keep the state's retirement systems from running out of money. From 1996 to 2012, state lawmakers approved cost-of-living raises for state retirees receiving monthly benefit checks.
The consultants say lawmakers should eliminate those raises. They also recommended lawmakers increase the retirement age to 65 for most workers, stop letting workers use leftover sick days to boost their benefits and offer a 401(k)-style plan for all new hires.
Republican state Senator Joe Bowen noted lawmakers would make the final decision.
Following the meeting, Bevin issued the following statement:
“This latest report from PFM further confirms the need for urgency as we resolve Kentucky’s pension crisis. Change is necessary. Time is not our ally—we must act now to get our financial house in order. There is no other viable option. I am convinced we can get this done and am committed to doing so. For those now retired, for those still working and for those yet to come: we will save the public retirement systems. We will not kick the can down the road any longer. We were elected to fix this problem and we will. The fiscal abuse of Kentucky’s retirement systems is over."
Kentucky Democratic Party spokesperson Brad Bowman said in a release:
"Cutting earned benefits of our hard-working public servants guts our middle class and reduces our future economic viability. Tax reform must be coupled with any serious look at pension reform. Kentucky’s middle class pays 10.5 percent in taxes while the state’s top earners only pay 6 percent. Cutting education and shifting costs to the local level excuses the state from its responsibilities while forcing state workers to seek employment elsewhere."
Kentucky's budget director says the state will need nearly an extra billion dollars every year to fix the state's public pension system. John Chilton says the state will need $700 million per year to pay toward its pension systems for state workers and teachers. Plus, the state will need an extra $200 million to put into the state's reserves.
To find this money, lawmakers would have to make deep cuts in the state's annual operating budget. If lawmakers exclude services like public education and Medicaid, it would require budget cuts of 34.4 percent. Chilton said lawmakers could cut $510 million from K-12 education funding to soften the severity of the cuts. If they did that, it would require budget cuts of 16.8 percent.
This story has been updated.
