Pensions

Bowen: State will have to compete with private sectors for workers after pension changes | Local News

State Sen. Joe Bowen, a member of the group crafting a public pension bill expected to be discussed later this year during a special session of the General Assembly, said Monday that altering pensions for new workers will mean the state will have to compete more directly with the private sector for employees.

Bowen, an Owensboro Republican and co-chairman of the state Public Pension Oversight Board, is a member of the group writing the bill. After the bill is released and legislators have time to review it, Gov. Matt Bevin is expected to call a special session on pensions, either in late October or early November.

Pensions for teachers and most state workers face large shortfalls. The retirement systems for state workers, teachers and hazardous-duty workers such as law enforcement officers have anywhere from about half to just 13.8 percent of the funds they need to meet obligations to retirees.

Bowen said Monday that changing the pension system so newly-hired workers have retirement plans similar to what people receive in the private sector will change the way the state recruits workers.

“There’s no question that future hires will have a different system” than the plans current workers and retirees receive, Bowen said. “When that happens, what government is going to have to do is … be competitive with wages.

“We’re going to have to have a pretty competitive pay scale with the private sector,” Bowen said. “But that is the way it always should have been.”

There are different tiers of pension plans, with current retirees and the longest-serving workers receiving a “defined benefit” plan. Workers hired after January 2014 receive “hybrid 401(k) plans,” which give them an guaranteed 4 percent annual return on their investment and 75 percent of other earnings over the 4 percent.

A recommendation by PFM Group, a Philadelphia-based consulting firm that studied the pension shortfalls, was that future hires receive a traditional 401(k) plan.

PFM Group recommended raising the retirement age for teachers and law enforcement officers, moving current employees in nonhazardous jobs in state government, county government and the judicial system into traditional 401(k) plans without the guaranteed 4 percent return on investment, and taking back cost of living adjustments state workers had received between 1996 and 2012.

Bowen said he could not elaborate on what recommendations from PFM Group would not be included in the bill, because the plan was not final. But he said a provision to take back cost of living adjustments likely will not be in the bill.

“Some of the most drastic measures that cause the most angst among retirees are probably the ones that, at the end of the day, they should be least worried about,” he said. The bill won’t take effect right away, so people will have time to review the law before deciding if they need to retire, he said.

“What PFM did was try to give us a framework in which to work. They looked (the) system, looked at all the challenges and gave us a very hard-core path going forward to resolve the pension crisis.” While some recommendations were “useful,” others were “impossible,” Bowen said.

“Some of them totally divorce themselves from the human element, and we can’t or won’t do that,” he said. Legislators have to consider “the promises that have been made (to workers), the lives built around the promises, what’s morally and ethically right.

“We’ve said all along the foundation to solving the pension crisis is going to be saving the pensions and keeping the promises, and that’s the framework from which we’ve been working.”

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