Jenkins Calls For REAL Pension Reform That Protects Working Families

Wednesday, October 23rd, 2013 @ 1:17AM

Public pension reform was more than an item on a legislative “to-do” list in January when the recently concluded 2013 legislative session began. It was an opportunity to protect current and future public workers through thoughtful tax reform.

What pension reform became – in the words of those of us who voted against the compromise contained in Senate Bill 2 which passed in the final hours of the last day of the 30-day session – is a quick fix that will harm the future lowest-paid state and local government workers while costing taxpayers as much as $250 million more than the pension plan proposed by the Kentucky House earlier in the session.

The flaws in SB 2 are many, beginning with a requirement that will put every state and local government worker hired after January 2014 in a “hybrid cash balance” plan instead of the defined benefit plan in which current state and local workers and officials are vested. This new hybrid plan will require public workers – the majority of whom will likely not receive cost-of-living increases for the foreseeable future – to have their retirement contributions invested in a cross between a 401(k) plan and a traditional pension plan, leaving a goodly portion of their future income at the whims of the stock market.

Now, we all know how the stock market works. Even with the 4 percent guaranteed return that SB 2 promises to retirees under the hybrid plan, it is very likely that moderate- to low-paid state and local government rank-and-file employees will work for less and draw less at retirement than current workers because of the 401(k) component. Some of these workers make less than $22,000 a year, which is $1,500 below the poverty wage for a family of four. The gap between the rich and poor will widen as the middle class continues to shrink.

It gets worse. Kentucky will have fewer and fewer qualified and educated workers over the 20 or 30 years that SB 2 is supposed to be “paying down” the current $19 billion-plus in unfunded pension liability in the Kentucky Retirement System. Future workers will instead seek better paying jobs with better benefits outside of the public sector.

The scheme to pay off the unfunded liability in the KRS is another flaw in SB 2. Made law with the passage of the companion bill, HB 440, in the session’s last hours, the pension funding plan is reminiscent of other creative funding plans the General Assembly has used to avoid meaningful tax reform over the past 15 years. It essentially cobbles together a little shy of $100 million a year (which is the amount the state needs to make its required annual contribution to the retirement system known as the “ARC,” or actuarially required contribution) by snipping the state personal income tax credit in half, capping compensation for companies that collect the state’s sales tax at $50 from $1,500, giving the Department of Revenue more revenue collection authority, and anticipating a draw-down in funds from federal tax law changes.

But it goes a step further. While those moderately- and low-paid workers will pay more in taxes because of the cut in the personal income tax credit, folks who can afford to buy new cars will get a tax credit on their trade-in. An “offset,” it’s called. And that is a fact.

Yet more hard facts of SB 2 and HB 440 are – and you can’t change facts, as Speaker Greg Stumbo likes to point out – that the revenue raised to pay for the pensions isn’t set aside for the ARC. Every cent that HB 440 raises will be placed in the General Fund, our state’s household checkbook. And that, as a matter of fact, pits the ARC against other immediate needs in our schools, social service system, Medicaid, public safety, the court systems and environmental protection when we carve up the budget every two years. As we recall, this competition for dollars is a major reason we got ourselves in this pension mess in the first place.

Tax reform that would have clearly addressed the pension issue and eliminated unnecessary tax burdens on future employees, retirees and Kentuckians across the commonwealth was possible this past session. Now that much needed tax reform is unlikely since the exigent pressure is off the governor and the legislators who supported SB 2 and HB 440.

We will continue to push in the next budget session and the one after that for meaningful reform that helps, not hinders, the economic security of our state and all its citizens. Kentucky’s current tax system is unsustainable; it promises to worsen as a crisis for all state funded programs. It will take courage, leadership and wisdom to do what is right for our commonwealth. Those virtues are scarce in Frankfort right now.


Frankfort, Ky. 40601

The authors are members of the Kentucky House of Representatives from Jefferson County. – Editor


Article appeared first on Coshocton Tribune

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