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By Alex Ebert
Kentucky conservatives want state lawmakers to get back to fixing the pension system, and not just settle for short-term funding. Their message: Think defined contribution.
Nineteen Republican fund-raisers, conservative think-tank leaders, and anti-tax advocates sent a letter to every member of the Kentucky House and Senate Feb. 9 urging them not to lose sight of structural changes to state employee benefits backed by Gov. Matt Bevin (R).
The groups are concerned that the push for shifting Kentucky’s defined benefit program to a defined contribution system could be lost while politicians haggle over $3 billion in new pension payments and about proposed cuts to 70 state programs in Bevin’s 2019-2020 budget.
“Fully funding the system is essential, and no reform is sufficient without it. Full funding and realistic assumptions alone will not solve the problem though,” the letter said. Signers included the Kentucky Republican Party Chairman Mac Brown and national anti-tax advocate Grover Norquist.
After nearly a year of reform promises, state-funded studies, and a much-hyped proposal from Bevin in October, conservative advocates fear the appetite for sweeping change has flagged. This has created frustration and pessimism among conservatives who anticipated structural changes when the Republican Party took control of the legislature in 2016 for the first time in nearly 100 years, Jordan Harris, founder and co-executive director of the conservative Pegasus Institute, told Bloomberg Law Feb. 12.
“We’re shocked that it’s day 28 of 60 in this session and not only is this not resolved, we don’t have a bill yet,” Harris, one of the letter’s organizers, said. “There are people on this list who spent hundreds of thousands of dollars and decades to make sure we’re in this position. There is a palatable pessimism on behalf of conservatives when they look at the lack of movement on this.”
Bevin’s October proposal would shift nearly all new state workers to a defined contribution plan and switch current employees to a defined contribution plan once they reached age 55. The plan was blasted in town halls across the state, and despite Bevin’s repeated calls for a special session in 2017, the session was never called and a bill is yet to be introduced. The legislature retires in April.
Both conservatives and liberals agree that the proposal has faced stiff resistance from the left. The opposition has been driven by state workers concerned over benefit cuts and hits to their local economy, Brad Bowman, spokesperson for the Kentucky Democratic Party, told Bloomberg Law Feb. 12.
“When people started looking at what Bevin’s proposal would entail, everybody railed against those changes. Those teachers and firefighters were saying, ‘How could you do this to us?’” Bowman said. “You add in the fact that we’re coming up on mid-term elections. You have a rift where Republicans might not want to vote against the interest of their retirees in their district when their seat is going to be up for re-election.”
Liberal groups such as the Kentucky Center for Economic Policy say switching to a defined contribution plan would create larger funding problems for the state. The group says Kentucky taxpayers will have to pay more into state retirement funds than before. That’s because workers with defined contribution plans won’t contribute to the defined benefit plans.
However, Harris said that just switching over to a defined contribution plan could save taxpayers money in the long-run.
“Whenever Kentucky misses its actuarial number or we have a Wall Street downturn, it’s the taxpayers that take up the burden,” Harris said. Defined contribution plans are a “risk” borne by taxpayers that Republican leaders should remove, he said.
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