Kentucky Lawmakers to Make Honorable Transfer into Depleted State Retirement System

Kentucky state lawmakers are advancing legislation that would ensure that 48 participants in the state’s Legislators Retirement Plan (LRP) elected since 2014, as well as any new legislators, begin participating in the Kentucky Employees’ Retirement System (KERS) for the duration of their legislative service. It would also eliminate a pension-increasing practice called “reciprocity” after July 1.

The law is intended to help align the interests of the state’s lawmakers with that of the state’s retirement plan, which is only 13% funded.

“I do believe that the legislators have to own the anxieties that our everyday people working in state government are living with,” said state Rep. Kelly Flood. “We’re joining everybody else, because it’s time.”

The remaining lawmakers elected before 2014 will see their benefits multiplier cut from 2.74% to 1.97%. The bill would also cut off certain avenues of funding to the LRP until its funded status is equivalent to or less than the KERS pension fund.

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Currently, the LRP is about 99% funded, and is expected to be 165% funded by 2039.

In contrast. KERS is grappling with a variety of situations that contest the viability and health of the fund in the foreseeable future.

One such issue is a potential funding “death spiral” that necessitates the state pension system to transfer from a so-called “percent-pay model” to a “liability-based model.”

“The death spiral is that the remaining employers have to pay a higher rate, which encourages more employers to cut back on their staff, that results in an even higher rate for the remaining, which results in even more cutbacks—it never ends,” a spokesperson for the retirement system told CIO.

“The solution is to take the aggregate liability and assign it to each individual employer, much like a mortgage, and they have a fixed payment over 24 years to pay it off,” the spokesperson said.

“This would be the exact set of events that led to the same under-funding situation with the other state plans,” said Donna Stockton-Early, executive director of the Kentucky Judicial Form Retirement System, which manages the legislative plan. “You’re just going to cost the commonwealth a lot more money in the long run.”