Kentucky Club for Growth
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June 17, 2008

Pension Problems Will Persist

The pension plan that leadership in the Kentucky House and Senate have basically agreed upon amounts to trimming a rotten roast.

The problem isn't the fat on the pension system, it's the rotten nature of the system itself. Kentucky's legislature (aided by governors of both parties) has demonstrated that it is unable to manage taxpayers' money wisely, so why should it come as any surprise that they've been derelict in their duty to fund the pensions of state workers?

Lawmakers should instead work toward the following:

1. Stop the bleeding. No new state workers should be involved in a state-run pension system. Kentucky already has 401k plans available for all state workers. Instead of contributing to a pension fund, all future state workers should be given a sizable match for contributions to those already-established plans.

2. Get as many current workers out of the system as possible. Give current state workers sizable raises and other immediate cash payments in exchange for rolling over the current value of their past contributions to a 401k plan. It may even be worthwhile for the state to let these workers get out of the pension system with the current value of the state's contributions to the pension fund.

3. Pay the full cost of the current state workforce with current dollars. Lawmakers love to give benefits to favored constituencies now and let the details of how to pay for it fall to future taxpayers. It's unsustainable and forces future lawmakers and taxpayers to clean up the messes left by lawmakers long retired (and often collecting their own state pensions). When lawmakers must match a state worker's 401k contribution, they'll have to have the money immediately. They don't get the luxury of putting an IOU into an increasingly unstable state pension fund. That means priorities must emerge. Lawmakers hate having to value one program or cost above another, but that's precisely what we pay them to do.

These problems are easily solved on paper. It doesn't mean they're easy to get done. It will take lawmakers of courage and vision to end this pension shell game.

Based on the plan already put forth, we'll likely still be eating rotten roast for a few more years.

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