Call to Order and Roll Call
The6th meeting of the Public Pension Oversight Board was held on Monday, June 26, 2017, at<MeetTime> 1:00 PM, in Room 154 of the Capitol Annex. Representative Brian Linder, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Joe Bowen, Co-Chair; Representative Brian Linder, Co-Chair; Senators Christian McDaniel, Gerald A. Neal, Dennis Parrett, and Wil Schroder; Representatives Ken Fleming, James Kay, Jerry T. Miller, Arnold Simpson, and Russell Webber; J. Michael Brown, John Chilton, Mike Harmon, and James M. "Mac" Jefferson.
Guests: Larry Totten, State President, Kentucky Public Retirees; Jim Carroll, Co-Founder, Kentucky Government Retirees; T.J. Gilpin, Kentucky Association of Transportation Engineers/Kentucky Transportation Employee Association; Joe Baer, President, Kentucky Professional Firefighters; Nicolai Jilek, Kentucky Fraternal Order of Police; Stephanie Winkler, President, Kentucky Education Association; Romanza Johnson, President, Kentucky Retired Teachers Association; Dr. Tom Shelton, Executive Director, Kentucky Association of School Superintendents; Shellie Hampton, Director of Government Relations, Kentucky Association of Counties; Bryanna Carroll, Government Affairs Manager, Kentucky League of Cities; David McFaddin, Eastern Kentucky University Vice President, Office of Engagement, Regional Stewardship and Government Relations; Tony Glisson, Western Kentucky University, Director of Human Resources; Beth Patrick, Morehead State University, Chief Financial Officer and Vice President for Administration; and John Gohmann, Regional President, PNC Bank and Chair of the Kentucky Chamber Pension Task Force.
Approval of Minutes
Representative Kay moved that the minutes of the May 22, 2017, meeting be approved. Senator Parrett seconded the motion, and the minutes were approved without objection.
In his opening remarks, Representative Linder stated that Co-Chair Bowen and he thought it necessary to give those most affected by pension reform an opportunity to express their thoughts and ideas on pension reform. The Public Pension Oversight Board (PPOB) has investigated and discussed the many reasons responsible for the great task the Commonwealth is now facing. In the coming months, the PPOB will work from the suggestions of the stakeholders, PFM, the Governor’s Office, public pension constituents, and the taxpayers of Kentucky to craft reform legislation that will hopefully set Kentucky's public pensions back on a course of sustainability.
Kentucky Public Retirees
Larry Totten, State President of the Kentucky Public Retirees (KPR), testified that the language contained in the first section of KRS 61.692 has served as the bedrock for public pension policy for decades and has been the foundation for the expectations that retirees and active employees have regarding their pensions. Mr. Totten stated that another element that requires comment is the potential shift to 401(k) accounts becoming the primary retirement savings instrument. If adopted, Mr. Totten would like the participation to be mandatory or an opt-out plan. Also, if new employee retirement contributions are put into personal accounts, funds would no longer be a part of the employee contributions going into Kentucky Retirement System (KRS) and over time would become an increasingly large hole in the funding stream for the current retirement plans. Mr. Totten stated that both PFM Consulting and Milliman appear to be recommending that KRS abandon its current level-percent-of-payroll amortization, which is required by statute, in favor of a level dollar amortization plan. While this will cost considerably more immediately, the unfunded liability is reduced quicker and the overall dollars expended over the amortization period are billions less than with the level-percent-of-payroll method.
On the issue of the County Employees Retirement System’s (CERS) separation from KRS, Mr. Totten stated that the Kentucky Public Retirees believe a thorough third-party review of the administrative requirements and actuarial costs of such a split is needed before any action is taken.
Mr. Totten stated that while tax reform may be difficult, it can be constructed from several different areas, such as, raising the sales tax. Based on last year’s collections, each penny of the existing sales tax has a value of over $500 million. Any reform must also review the array of tax expenditures that costs the state $12 to $13 billion in revenue each year.
Kentucky Government Retirees
Jim Carroll, Co-Founder of the Kentucky Government Retirees (KGR) testified that KGR is a section 501(c)(5) labor organization and an advocacy group representing 9,700 retired and active KRS members. In the second report, PFM concluded that Kentucky Employees Retirement System (KERS) was in good shape a decade ago with a funding level of nearly 75 percent and that the huge decline in funding was caused mostly by employer underfunding and back loading along with unfunded cost-of-living adjustments (COLA). He stated that PFM actuaries determined that the benefit structure of KRS had no impact at all in the cash crisis. KRS’ own actuary did a similar analysis for the years 2008-2014. The primary cause has been underfunding, and benefits were completely irrelevant to driving up liabilities.
KGR believes there are two critical issues relating to pensions. First is the inviolable contract: KGR will strongly oppose any attempt to reduce the benefits of any member of the defined-benefit plans and believes the state has a legal and moral obligation to pay the benefits that have been and will be earned. Second, if a transition into a 401(k) savings plan is considered: KGR has deep concerns about the fiscal impact that such a transition would have to the legacy plans. If a 401(k) plan for new hires is adopted, it will only reduce long-term costs compared to the legacy plans, and the long-term savings will be only incremental compared to the hybrid plan. The hybrid plan reduces employer risk because future benefits in the hybrid plan are not guaranteed and the General Assembly can lower the employer contribution rate at will. Under a 401(k) option, there would be no new contributors putting money into the system.
KGR’s position on the CERS separation is the concern of the administrative burden that will be placed on KRS. KRS is experiencing high turnover and is understaffed. KGR would like to see a full accounting of the transition costs including staffing demands.
Mr. Carroll stated in regards to tax reform, it is essential that the General Assembly enact tax reform that provides more revenue to address pensions.
Senator McDaniel asked Mr. Totten and Mr. Carroll if either of them support benefit adjustments for current employees, retirees, and future hires or raising employee contribution rates. Mr. Totten did not think his group would support reducing benefits for retirees, and anything else would have to be discussed. Mr. Carroll stated that the inviolable contract means benefits cannot be altered and sees no basis for increasing employee contributions or cutting benefits for retirees or those under Tier 1 and Tier 2.
Senator McDaniel asked Mr. Totten and Mr. Carroll if they would rather raise taxes or cut government. Mr. Totten responded that he was not a believer that revenue cannot be increased. Mr. Carroll responded that he agreed with Mr. Totten and stated that there are more demands for services and benefits then a capacity to get revenue.
Senator McDaniel asked Mr. Carroll if the entire administrative burden were to go to CERS for the cost of separation would KGR oppose separation. Mr. Carroll responded that the administrative burden that he is talking about deals with the effort KRS staff will have to engage in for the next 4 years.
Senator McDaniel asked Mr. Totten and Mr. Carroll if either of their groups support legalizing medical marijuana or approving casino gaming as a potential revenue source to pay for pension obligations. Mr. Totten and Mr. Carroll said their groups had not discussed the issue.
Representative James Kay commented that he had some possible solutions that could help simplify the investment strategy and cut out expensive Wall Street fees and charges. First, he stated that the PFM Group looked at all systems pooling assets together to leverage better investment deals in the market, and he believes that suggestion should be considered. Second, legislators should switch into the state employee retirement fund to show solidarity with state employees. Third, the cigarette tax should be raised and dedicated to the pension underfunding. Fourth, opioids that come into the state should be taxed and directed to the pension problem, then once the pension system is relieved, directed to treatment options for those battling addiction. Fifth, state employees should be given raises that would increase contributions into the pension obligation without adding unfunded liability. Sixth, state employee pension buyouts should be considered. Also, putting cash generating public assets into the pension fund should be evaluated. Lastly, an innovative policy option to consider is to appropriate money to Kentucky’s infrastructure, which would fund local, county and state road projects to help crumbling roads, bridges, and highways, and then match those with pension assets, so the pension system can earn what state employees and state government is paying out to those outside of state government.
Kentucky Association of Transportation Engineers/Kentucky Transportation Employee Association
T.J. Gilpin, from the Kentucky Association of Transportation Engineers (KATE), discussed Governor Bevin's plan to call a special session to address tax reform and pension reform. Mr. Gilpin stated that his group believes that tax reform is the key to making the pension systems solvent again. Kentucky brings in roughly $10 billion in revenue and provides over $12 billion in tax incentives, tax breaks, and tax exemptions each year. More money walks out the door each year than what is brought in as revenue. He said the PFM group estimates that an additional $700 million each year is needed on top of what is already being paid to the pension system.
Mr. Gilpin said his members have concerns over rumors and speculation that their pension benefits may be reduced, suspended, or taken away and that he has advised them to contact their legislators. He discussed a 1995 Kentucky Supreme Court case, Jones v. Board of Trustees, and stated the Supreme Court of Kentucky acknowledged that the General Assembly can take no action to reduce the benefits promised to participants and that KERS members have a contractual right to the benefits promised upon retirement.
Senator McDaniel asked if the Kentucky Association of Transportation Engineers/Kentucky Transportation Employee Association supported taxing the sale medical marijuana and/or legalizing gaming. Mr. Gilpin responded that his groups have not discussed those matters and reaffirmed that his group believes that the issue of tax reform is needed.
Kentucky Professional Fire Fighters
Joe Baer, President of the Kentucky Professional Firefighters (KPFF), discussed how most firefighters do not participate in Social Security, and therefore, CERS is their only source of retirement and that a 401(k) would not provide a reasonable monthly income. Those who participate by working a secondary job are penalized under the federal Windfall Elimination Provision. Mr. Baer stated that since the implementation of Tier 3, many fire departments are seeing a decline in the total number of applicants and recruitment and retention have been a problem.
The KPFF supports separation of CERS from KRS. CERS is the only plan under KRS that has always paid their annual required contribution.
Kentucky Fraternal Order of Police
Sherriff Burrell Perdue, President of the Kentucky Fraternal Order of Police (FOP), stated that police officers and deputy sheriffs from all over the state were in attendance because they were concerned about their future pensions. Sheriff Perdue stated their major issues and concerns are the protection of the inviolable contract. Pension changes have made recruitment and retention a problem in Sheriff Perdue’s small office of 14 people. All offices, large and small, have gone from having hundreds of applications to a handful, and some have had to alter their requirements in order to get applicants. Sheriff Perdue stated that the FOP is in favor of the CERS separation.
Nicolai Jilek, Louisville Metro Police Officer, said whether it is on the streets, in neighborhoods, courts, jails and prisons, most people would never consider being a police officer. Mr. Jilek stated there was a time that being willing to put your life on the line for a stranger was taken into consideration and that many earned sub-professional wages and benefits with the option of retiring at 20 years. He further stated that the erosion of benefits, which are described by benign terms of Tier 1, Tier 2, and Tier 3, have divided men and women in uniform as they work shoulder to shoulder having the exact same job and duties with very different compensation.
Mr. Jilek stated that Kentucky was recently ranked in a comprehensive national study as one of the worst states to be a police officer. The study organized by Wallethub.com, a reputable financial website, examined all 50 states and the District of Columbia across various dimensions. Overall, Kentucky is in the bottom 5 when it comes to number of officers per capita and last when it comes to state and local police protection expenses per capita. As of 2015, the most recent year with comprehensive statistics, the average starting salary for a Kentucky officer was just over $28,000 with at least 17 agencies that started their officers at $20,000 or less.
Mr. Jilek discussed that various communities across the Commonwealth have seen dramatic upticks in crime, namely in homicides, gun and gang related violence, and the opioid crisis. Kentucky needs to invest properly in front line defenders and first responders, who will inevitably be the ones carrying much of the physical and emotional burden of the government’s efforts.
Senator McDaniel asked Mr. Baer and Mr. Perdue if their groups were in support of taxing the sale of medical marijuana. Both groups said they had not discussed the matter.
Budget Director John Chilton wanted to make a clarification that the State Police are under a separate pension system even though some may be members of the FOP.
Representative Miller asked Mr. Jilek if there was a large number of police retirements planned within the next three months. Mr. Jilek answered that retirements had doubled from this time last year.
Kentucky Education Association
Stephanie Winkler, President of the Kentucky Education Association (KEA), noted that KEA represents more than 44,000 active, student, and retired members. The KEA agrees with the board and others that the state is faced with challenges relating to funding status and dedication of revenue to the state’s defined benefit pension plans. These retirement benefits provide education employees with post-employment income security that is critical to the growth and maintenance of a well-trained and stable workforce in Kentucky’s public schools.
Ms. Winkler stated that CERS is well-funded because the employee and employer participants are legally required to make their contributions and cannot postpone or sidestep those financial obligations.
KEA believes, as in 2010, when they worked in a bi-partisan manner to achieve the shared responsibility plan to help fund retiree health insurance, that it can also be a partner in this work to achieve solutions to pension issues. Solutions are going to take good communication, an open dialogue, paradigm shifts in thinking, and a willingness to compromise for the good of the whole.
KEA is ready and willing to step up to the plate to help make smart and sound financial decisions that will continue to attract and retain high-quality employees for Kentucky public school students.
These employees are doing what is expected of them by dedicating themselves to their work, insuring the educational success to students, and contributing to the future of the Commonwealth. Ms. Winkler stated that employees deserve and have earned the benefits promised to them.
In response to a question from Senator Bowen, Ms. Winkler said KEA did not have an opinion on CERS separation.
Kentucky Retired Teachers Association
Romanza Johnson, President, stated that Kentucky Retired Teachers Association (KRTA) includes over 30,000 retired educators, who continue to serve Kentucky students and families. This year alone, retired educators volunteered more than 946,000 hours across the state by reading in classrooms and filling backpacks with food and supplies for low income students.
Most retired teachers depend on their modest but stable pension to make ends meet because they do not receive Social Security. The average annual pension benefit for a full-time teacher working nearly 30 years is $36,000.
Ms. Johnson stated that it would be a mistake for policymakers to consider switching teachers from defined benefit pension plans to a 401(k) type program. It will harm Kentucky’s ability to recruit and retain qualified teachers. Switching from one type of retirement plan to another does not close funding gaps, generates no new money coming into the plan, and does not eliminate underfunding.
Ms. Johnson discussed recommendations moving forward to stay the course and fund the actuarially required contribution (ARC) until the Teachers’ Retirement System (TRS) is fully funded and keep TRS as a defined benefit retirement plan to protect taxpayers, teachers, and education.
Kentucky Association of School Superintendents
Dr. Tom Shelton, Executive Director, stated that the Kentucky Association of School Superintendents (KASS) represents the 173 public school superintendents of Kentucky. These school districts include, 42,000 teachers, nearly 8,800 other certified staff (counselors, librarians, and administrators), and nearly 47,000 classified staff members (bus drivers, custodians, food service, office staff, instructional systems, and support program staff).
KASS recognizes and understands the problems of both the underfunded liability and the ongoing cost of the ARC and KASS wants to be a part of the solution and to participate in ongoing conversations. KASS implores the General Assembly to not negatively impact current retirees or their beneficiaries and to not negatively impact the benefits earned and expected by current employees under the inviolable contract.
Some considerations for solving these issues are new revenue via tax reform, aligning state law with the Internal Revenue Code, and/or removing tax exemptions. Further, the legislature should consider shared responsibility between members of the retirement systems, such as recent changes made to the Missouri state plan, and long-term funding of the ARC to develop and/or maintain an actuarially sound system while structural changes are made over time.
Representative Linder asked for the states average tenure of a superintendent before retirement. In response, Mr. Shelton stated the average tenure for a superintendent is less than 4 years. Mr. Shelton explained that this average has been declining every year, and that the issue is being studied by KASS.
Senator McDaniel stated that Mr. Shelton referenced the notion of shared responsibility between members and making certain that the ARC is funded. Senator McDaniel believes the statutory construct for TRS is actually a set percentage of payroll, not an ARC. The percentage of payroll has always been met. He asked Mr. Shelton if he was proposing changing TRS to an ARC-based system like KRS. Mr. Shelton answered he was simply making the recommendation that the system be fully funded.
In response to Senator Bowen, Mr. Shelton stated that KASS has not taken an official position on capping the calculation of a superintendent’s pension in order to help enhance a teacher’s pension.
Mr. Chilton asked whether some of the assumptions should be changed in the TRS system. Mr. Shelton stated that in his own personal opinion as a former chair and member of the TRS, the actuarial assumptions that have been used are well-tested and properly evaluated and are consistently used in many other major pension systems. As a member of KASS, he believes that revising the actuarial assumptions should be part of the conversation.
Kentucky Association of Counties
Shellie Hampton, Director of Government Relations, stated Kentucky Association of Counties (KACO) once again joins the Kentucky League of Cities (KLC), the Kentucky School Boards Association (KSBA), and the Kentucky Professional Firefighters (KPFF) in voicing continued support of SB 226, championed by Chairman Bowen and 13 other co-sponsors, during the regular session. At this time, KACO remains very supportive of SB 226. The majority of county employees are members of CERS and 2.5 out of 10 KACO affiliates are Kentucky Employees Retirement System (KERS) members. KACO has a vested interest in both systems. Ms. Hampton stated it should be noted that their legislative committee unanimously voted to support the inviolable contract over and above separation. KACO wants separation of CERS, but not at the expense of the inviolable contract. The inviolable contract, as it exists with Tier 1 and Tier 2 employees, has a finite number of members at this time and eventually will cease to exist.
Kentucky League of Cities
Bryanna Carroll, Government Affairs Manager, for the Kentucky League of Cities (KLC) and KLC Board member Wayne Turner, Bellevue Police Chief testified regarding their recommendations. Ms. Carroll stated that she wanted to restate KLC’s unwavering support for the separation of CERS. She stated the list of other groups that are supportive of the measure including: KACO, KSBA, Kentucky Professional Firefighters Association, Kentucky Association of Chiefs of Police, FOP, Kentucky Magistrates and Commissioners Association, Kentucky County Judge Executive Association, Kentucky Sheriff’s Association, Kentucky Association Circuit Court Clerks, Kentucky Corners Association, Kentucky Jailors Association, Kentucky Black Caucus of Local Elected Officials Association, Kentucky City County Management Association, Kentucky County Clerks Association, Kentucky Government Finance Officers Association, Kentucky Municipal Clerks Association, Kentucky Occupational License Association, Kentucky Recreation and Park Society, Municipal Attorneys Association of Kentucky, and the Kentucky Association of Fire Chiefs.
Ms. Carroll explained that CERS is 62 percent funded and the remaining KRS plans, the State Police Retirement System (SPRS) and KERS, are 24 percent funded. CERS has 73 percent of the assets and covers 63 percent of the administrative cost of KRS. Since the passage of SB 2 in 2013, CERS has a higher funding ratio.
In response to Senator Schroder, Ms. Carroll stated that if CERS were to fail after separation, the contract does not change, and CERS would be responsible for any liability.
Senator McDaniel asked KACO and KLC if they were fine with any administrative costs of separation being completely born by the CERS system. Ms. Hamilton stated KACO has not discussed this issue. Ms. Carroll stated KLC is fine paying their fair portion.
Senator McDaniel asked what would prevent the KRS Board from voting to combine the assets of all plans. Ms. Hamilton stated that would be a huge cause for concern, and KACO would seek legal counsel. Ms. Carroll stated she believed there is nothing to prevent KRS from combining assets and that there already are investments that are commingled.
John Chilton stated that it was his understanding that funds are not commingled, that sometimes similar investments are made to achieve a break in the investment fee and take advantage of economy of scale, but the funds have been and always will be separate.
Representative Fleming and Mr. Chilton separately inquired about the relative importance of salary or benefits in the attraction of new talent. Mr. Chilton cited the PFM finding that with the combination of both salary and benefits, Kentucky employees are better compensated that private sector employees. Mr. Chilton asked the panel if given a choice, would they recommend increasing salaries or increasing benefits. Ms. Carroll stated that KLC is not completely opposed to a 401(k) plan, but that such a plan should provide an opt-out for mayors.
Senator Bowen made the statement that, in his argument for the separation of CERS, KRS would benefit just as much as CERS.
David McFadden, Eastern Kentucky University Vice President, Office of Engagement, Regional Stewardship and Government Relations, stated that only the comprehensive universities and Kentucky Community and Technical College System (KCTCS) participate in KRS. The comprehensive universities include Eastern Kentucky University, Western Kentucky University, Northern Kentucky University, Morehead University, Murray University, KCTCS, and Kentucky State University. Mr. McFadden stated that his group represents the only agencies that do not have a line item in the budget bill for their pension obligation. Those obligations are born by the institutions, which then have to resolve those payments to KRS on a regular basis.
In 2007/2008, the gross tuition and fee revenue was 57 percent and the net general fund appropriations was 43 percent. In 2015/2016, the gross tuition and fee revenue was 71 percent and the net general fund appropriation was 29 percent. The professional staff and faculty are in the Teachers’ Retirement System (TRS), and the non-exempt/hourly employees participate in KERS. From 2008 to 2016, there was exponential growth in the employer contributions for both of those systems, topping at nearly $90 million by 2016. Meanwhile, the net general fund appropriation continued to erode. The cumulative net impact in 2016 was nearly $145 million. Mr. McFadden stated that 28 percent of their total budget is committed to pension obligations.
Tony Glisson, Western Kentucky University, Director of Human Resources, discussed how the 49.47 (as of July 1, 2017) percentage of pension contribution along with the health contributions, life insurance, plus miscellaneous benefits totals nearly 76 percent to 80 percent of salary, which is not sustainable to the organizations.
Beth Patrick, Morehead State University, Chief Financial Officer and Vice President for Administration, stated that trying to set a budget moving forward with the growth seen in this expenditure category was nearly impossible. The unpredictability of the growth layered on top of the reductions seen in state appropriations has made it almost unsustainable as an institution to be able to accommodate these benefits.
Representative Linder asked when a professor takes a sabbatical do they continue to receive benefits. Ms. Patrick answered yes.
Representative Linder asked what percentage of the faculties at all institutions are on sabbatical. Mr. McFadden answered that it is a very small percentage and for those that are participating in TRS (except Northern KY University), the institutions are moving those positions to the optional 403(b) plan. The ratio is about 50/50 and declining between those who choose to be in TRS and those who are choosing the optional retirement or the 403(b) path.
Mac Jefferson asked in regards to KRS and the lack of payroll growth, has there been any data provided that would help quantify the scale of the outsourcing in the universities. Ms. Patrick stated that such a study had not been done, but the information could be provided.
In response to a question from John Chilton, Mr. McFadden stated that exempt staff (bachelor’s degree or higher) must participate in KERS. Those who can choose between TRS and the 403(b) are about 50/50, but it continues to decline with more people choosing the optional retirement plan.
Kentucky Chamber of Commerce
John Gohmann, Regional President, PNC Bank and Chair of the Kentucky Chamber Pension Task Force, stated that the Kentucky Chamber has been speaking out publicly about the state’s public pension challenges for more than ten years. During that time a number of reports and legislative testimony have been produced highlighting the negative impact of rising benefit costs on other important areas of state spending, especially education. Further, these past reports advocate changes to make the retirement systems more sustainable.
With the business community paying a significant amount of taxes in Kentucky, the growing pension debt and financial uncertainty is not good for business. Not only does the crisis take away needed dollars from education, transportation, and economic development, it provides less of an attractive environment in which to operate.
For the Chamber, the general view is public retirement benefits should reflect those available in the private sector as much as possible. Private sector employees primarily depend on 401(k) plans and Social Security and must work longer than public employees before retiring.
The Chamber believes the best way to develop a clear and certain path forward is through a combination of additional financial investments in the retirement system and benefit changes that are legally sustainable.
The Chamber also agrees with the Governor that additional revenue will be required to meet the Commonwealth’s financial obligations, both for pensions and other important areas such as education funding. Kentucky needs to focus on a tax system that improves competitive position and provides for growth in revenue.
In response to questions from Senator McDaniel, Mr. Gohmann answered that the Chamber has no position on legalizing medical marijuana at this point and gaming has not been discussed for some time and not in relation to the pension situation. When discussing more revenue towards pensions, it was their understanding that it was the Governor’s plan to combine both the pension conversation with tax conversations and, because of that, it is a function of the new tax plan that will be proposed as to what the pension resources will be. In the big picture, the Chamber wants Kentucky to be a viable place to do business. With that goal in sight, the Chamber does not want to advocate for pension reform that cripples other areas of the economy.
Ron Richmond, American Federation of State, Municipal, and County Employees (AFSCME), stated he represents over 6,000 members and that the organization represents teacher assistants, diet and nutrition workers, sanitation workers, correctional officers, zoo keepers, revenue clerks, auditors, and library workers.
AFSCME includes current and retired employees who took public positions because of the promise of retirement security through a pension. Many jobs are not high paying and many have to work second and third jobs to support their families. AFSCME is dedicated to public-sector employment because there is a future with a retirement that they have contributed to throughout their careers.
These pensions ultimately ensure that they will remain productive members of society after retirement. AFSCME has no control over the decision of their elected officials to fund or divert funds earmarked for the pension system. AFSCME looks to their elected officials to keep the promise to those who have dedicated their lives to the public.
Julie E. Johnson, Vice President, Kentucky Association of State Employees stated that she is a current state employee with over 24 years of service in state government and she is representing both current and retired members. As state employees, these members have paid into their pension with every paycheck and have kept their part of the contract. It is up to the legislature to keep their part of the inviolable contract.
Tax reform will be critical because KERS must have more revenue to avoid insolvency. Creating a 4TH Tier by putting new employees in a 401(k) plan will starve the current legacy plans, and KERS cannot afford this when it is only 13 percent funded. The Commonwealth will have to pay more because of the years of underfunding. Ms. Johnson stated that a dedicated funding stream is needed to provide the funding that is critical to paying the unfunded liabilities and sustaining the growth of the KERS pension plan.
Senator Schroder asked the groups that testified to offer their suggestions and solutions to the board.
With no further business, the meeting was adjourned. The next scheduled meeting is Monday, July 31, 2017.