The Kentucky Chamber of Commerce has penned a letter to the General Assembly asking them to pass meaningful reforms to our public pension systems this legislative session. We could not agree more.
However, while the Chamber gave a thoughtful analysis of both the issues we face and potential solutions to tackling our pension crisis, including the need for benefit changes, they failed to mention that benefit enhancements applied retroactively to workers and retirees are the major cause of the current situation in which we find ourselves.
As we outlined in our fall pension report, benefits are the primary contributor to the public pension systems insolvency:
“While funding and investment returns certainly are critical elements to healthy pension systems, they are only two of the Kentucky pension systems’ three-legged stool. Implementing effective and lasting reform will require the truth be told and understood about the third leg of that stool: benefits. A closer look reveals that the process by which benefits have been awarded to Kentucky’s public employees during the past 30 years is the primary cause of the commonwealth’s pension crisis.”
Over the years, the legislature has awarded numerous benefit enhancements without any analysis of the costs and impact their actions would have on the public pension systems. The result is that pension systems that were once healthy are now in crisis. The longer we wait to remedy this critical situation, the more painful the reforms will be to both government employees and taxpayers.