Sept. 5, 2012 —
Those of us who like challenges might ponder the job assigned to the Kentucky Public Pensions Task Force.
In the simplest of terms, that group is charged with coming up with a plan to save the state’s five pension plans for local and state government employees, including school districts.
And it is expected to do so by Dec. 7 so that the 2013 session of the General Assembly can wrestle with the hard choices that are sure to be presented.
In a statement issued last week after a meeting of the task force, the co-chairs of the group said of the challenges:
“Real change requires hard choices, good information, and thoughtful analysis. We intend to live up to this charge…”
Those encouraging words came from Sen. Damon Thayer and Rep. Mike Cherry, chairs of the state government committees in each chamber of the legislature.
A recent report by the Pew Center on the States says our state faces a $23.6 billion shortfall between what should have been set aside to pay future pension benefits and what has actually has been stashed.
To put that figure in perspective, it is about $4 billion more than the combined state budgets for 2012-13 and 2013-14.
Actuaries, those experts who analyze risks and costs based on statistical probabilities, are alarmed about the “unfunded liability” of each of the five pension plans.
“Unfunded liability” is what it would cost to meet pension and medical insurance obligations if all of the thousands of public employees retired today, essentially.
Such a scenario cannot happen, of course, because not every current employee is old enough or has enough years of service to qualify for retirement.
But the prudent folks who must plan for the future of the pension system don’t want any more risk than is absolutely necessary.
There was a time when Kentucky public pensions were among the strongest in the nation. In fact, they ran a surplus as recently as 2000.
However, by 2011, they had on hand just 53 percent of the assets necessary to meet their long-term pension obligations.
Four primary factors have contributed to the rapid change in the system’s financial health.
The economic downturn which started in 2008 had a devastating impact on the system’s investment portfolio.
Repeated failures by the state to make its recommended contributions in full caused the shortfall to grow.
Cost-of-living adjustments that were given without adequate funding also added to the deficit.
And past actuarial assumptions on salary growth and life expectancy of retirees proved to be incorrect, much to the joy of those individuals, no doubt.
In our view, solving the state’s public pension problem will take more imagination and political courage than we have seen in Frankfort in many, many years.