A consulting group contracted by the administration of Gov. Matt Bevin produced a report in August that recommended dramatic changes to Kentucky’s public pension plans in order to stave off insolvency, arguing that the system could be saved by converting most workers from a traditional defined benefit plan to that of a 401(k)-style defined contribution plan.
However, a new report released Monday by Colorado-based Pension Trustee Advisors — requested by a coalition of labor unions representing public employees in Kentucky — argues that implementing these recommendations of the PFM Consulting Group would actually increase costs for both taxpayers and public employees, while providing lower benefits.
This debate around public pension reform comes as Gov. Bevin is expected to call a special session of the Kentucky General Assembly in the coming weeks to tackle legislation on this issue, with a proposed bill set to be revealed by the governor and Republican legislative leaders Wednesday afternoon. Bevin lauded the report when it was released in late-August, though adding that his bill was not likely to exactly mirror the PFM recommendations.
The Pension Trustee Advisors (PTA) report stated that the PFM recommendation of switching public school teachers from a defined benefit plan to a defined contribution plan with participation in Social Security would cost considerably more for both employers and employees — especially if the employee volunteers to contribute up to an additional 6 percent of their salary toward the 401(k)-style plan, with the state providing a 50 percent match.
The Pension Trustee Advisors report also found that retirement income under the PFM recommendations “would likely not be as high as those estimated” in that PFM report, due to “lower investment returns, longer life expectancies and inflation that were not considered in the analysis.”
The report also asserts the PFM recommendations would not produce adequate retirement benefits for workers and “would leave many disabled workers and survivors without meaningful protection,” but “would result in substantial income to Wall Street and private investment managers who would earn much more than under the current program.”
The PTA report also disagrees with PFM on the major factor of why Kentucky’s public pension plans are underfunded by at least $30 billion, stating that this is primarily “due to years of government pension contributions below those required for actuarial soundness,” noting that other states with similar demographics have remained on sound financial footing because they properly funded their defined benefit plans.
The number of state workers retiring has surged in recent months as Bevin has drawn closer to announcing the special session and released the PFM report, with many expressing a desire to maintain their current benefits before the state implemented new changes. Bevin has repeatedly attempted to ease such fears, stating that he will keep the promises made to public workers and retirees while pushing through needed changes that keep the pension plans from collapsing.
Pension Trustee Advisors submitted the report at the request of the Kentucky Retired Teachers Association and the Kentucky Public Pension Coalition, which is made up of a diverse group of public sector unions representing police officers, firefighters, teachers and other state and local government workers.
A spokeswoman for Bevin did not reply to an email from IL seeking the governor’s reaction to the PTA report. Republican House Speaker Jeff Hoover and Senate President Robert Stivers did not immediately respond to a request for comment on the report.
The full report by Pension Trustee Advisors can be read below: