Pension proposals cut annual increases

By Jim Gaines

Mar. 30, 2008 (McClatchy-Tribune Regional News delivered by Newstex) --
While there's widespread agreement that the state retirement system for public employees needs serious reform, the leading contender for changes in this General Assembly session has some retirees worried that their pensions won't keep up with inflation.

Bowling Green resident Mary Jo Hawks and her husband, James, are both on that system -- she as a 27-year city employee in the accounting department, and he as a manager at Bowling Green Municipal Utilities. She retired in 2001 and he followed in 2002, Mary Jo Hawks said.

For the past few years, their annual cost-of-living increase has run about 2.5 to 2.8 percent, she said, but they're concerned that would drop off if House Bill 600 passes. Sponsored by Rep. Mike Cherry, D-Princeton, it puts retirees' annual cost-of-living increase in future years at 1.5 percent.

Cherry's bill is backed by 10 other Democrats, including House Speaker Jody Richards and Rep. Rob Wilkey, both of Bowling Green. It was introduced Feb. 21 and passed 96-0 a week later. A version passed the Senate 33-3 on March 12, but since then the chambers have wrangled over their bills' differences. It's still in a conference committee, but may come up for a second vote Monday, Cherry said.

He's optimistic that it will see final passage, though that may come on the session's last day April 15, he said.

The County Employee Retirement System, or CERS, covers employees in Kentucky cities too. It's one big branch of the overall state pension system, which has run a deficit for several years, requiring higher contributions from local governments and dipping into the principal that's supposed to be invested to provide regular payout checks to retirees. As of mid-2007, about 40,700 former employees and their dependents were drawing pensions from CERS, said Joe Ewalt, director of policy development for the Kentucky League of Cities.

The current law governing CERS ties cost-of-living adjustments to the federal Consumer Price Index, which has been running around 3 percent for the last several years, he said. But those annual increases usually haven't been funded by the General Assembly, so they've come out of the investment fund and from cities and counties themselves, Ewalt said.

The idea of setting a 1.5 percent minimum increase came from last year's state task force, which studied the pension system -- but even that still isn't required to be automatically funded by the state, he said. If passed, it would go into effect July 1, 2009, Ewalt said.

The law governing Kentucky teachers' retirement has included an identical provision for several years, said Brian Wilkerson, Richards' spokesman. While they're only promised a 1.5 percent annual pension increase, they usually get "something in the mid-twos," Wilkerson said.

The General Assembly can always vote to give a larger increase, but has to come up with the money -- not just the commitment -- at the time, he said.

"We call it a floor and not a ceiling," Wilkerson said.

Cherry said he would want to regularly put in more than 1.5 percent -- if the economy allows. In the past, the state has promised increases without funding them, he said.

"We've got to quit doing that," Cherry said.

The amount of cost-of-living adjustments, however, is the only thing in current retirees' contracts which the legislature can legally change, he said. In this tight budget year -- with state economists predicting a revenue shortfall of more than $400 million -- even current employees are only looking at a raise of 1 or 2 percent, Cherry said. With that in mind, it would be hard to justify giving more than that to retirees, he said.

The idea behind the 1.5 percent stipulation is to lower the program's unfunded liability, protecting the system for future retirees, Cherry said. If people are worried about that, "then they'll like the House plan better than the Senate plan," he said.

The Senate version, being debated in conference, would give only a 1 percent raise for the next two years, Cherry said. It would eliminate any "floor" unless the General Assembly immediately votes to fund it, and would drop it altogether in a decade, he said.

Newstex ID: KRTB-0033-24123384