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Kentucky not alone with its pension woes

February 19, 2010

We’ve been advocates on the Messenger-Inquirer editorial page for continued work to reform Kentucky’s pension system for public employees – state employees, teachers, local government workers – and faced some criticism for that stance.

Kentucky offers generous retirement benefits to its employees while the legislature has shrugged off its responsibility to fund them, creating a double whammy that has left the state with an unfunded liability in the tens of billions of dollars.

Recent action to curb pension benefits for new employees was a step forward, but just a first step. Those provisions – requiring employees to work longer and meet age thresholds before receiving full benefits – should be extended to current employees, our editorial board proposed in a recent piece.

Most states have shied away from that major step – changing benefits requirements for current employees – but as Stephen Fehr with notes in a column today, more states are considering making that change.

The issue of public pensions and their impact on state budgets is garnering more attention, Fehr notes, in part by New Jersey Gov. Chris Christie‘s recent comments about his state’s woes.

Fehr quotes Christie in his column –

“Make no mistake about it, pensions and benefits are the major driver of our spending increases at all levels of government—state, county, municipal and school board,” Christie said. “We cannot in good conscience fund a system that is out of control, bankrupting our state and its people, and making promises it cannot meet in the long term.”

Though Christie had the guts to say it, those words could just as easily have been uttered by Gov. Steve Beshear or the heads of numerous other states, considering the report released this week by the Pew Center on the States.

The report found that the different between what states have promised to their employees and what they’ve allocated to fulfill those promises is about $1 trillion.

From the Wall Street Journal

The pension problems started well before the recession. Even in good times, states were skipping pension payments, leaving larger holes to fill in future years. State legislatures also increased benefit levels without setting aside extra money to pay for them.

As a result, annual pension costs for states and participating local governments more than doubled, to more than $64 billion, from fiscal 2000 to fiscal 2008, said Susan Urahn, the research group’s managing director.

“We have a significant problem now, but it’s a problem that can be solved,” Ms. Urahn said. “If states wait, eventually they will have an unmanageable crisis on their hands.”

It’s tempting to wait to deal with this issue in Kentucky, particularly given the current budget crisis the state faces.

But the fact of the matter is Kentucky’s pension promises cannot be fulfilled without severe damage to the rest of the state’s obligations and services.

It’s pension system has seen some fixes going forward, but current teachers and employees will need to make some sacrifices to guarantee the sustainability of the pension system on which they rely.

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