December 22, 2006

 

Governor targets pension fund gap

 

SAYS SOME OF SURPLUS MONEY MUST GO THERE

 

By Ryan Alessi

 

HERALD-LEADER FRANKFORT BUREAU

 

FRANKFORT - Gov. Ernie Fletcher will ask lawmakers to divert part of the state's expected $279 million surplus to chew into the massive $12 billion shortfall looming over the retirement benefits system for state employees.

 

Fletcher told state workers in a letter yesterday that in addition to trying to pump additional money into the Kentucky Employees Retirement System -- which covers pensions and health care costs of retired state workers -- he also will convene a special committee to study long-term ways to keep the system afloat.

 

"Your retirement package is a commitment made to you by the commonwealth and I want you to know that I will do everything I can to ensure that Kentucky keeps the promise," Fletcher wrote.

 

That letter was the first hint of what the governor wants to do with extra money that he says the economy has generated. It also addresses what at least one state employee group has termed the "most critical threat" facing the 33,000 state workers and thousands more of former public employees.

 

A recent report to the retirement system board showed that the plan's current $6.6 billion in assets paled in comparison with the nearly $18.6 billion in benefits that system has committed to current and future retirees.

 

That $12 billion shortfall is far greater than previous estimates because the state calculated it using new accounting procedures required by the Governmental Accounting Standards Board, Fletcher's letter explained.

 

"The retirement system will have enough funds to pay benefits for many years," Fletcher said. "But this large shortfall, the product of conditions that have accumulated over recent years is not acceptable."

 

Stan Cave, Fletcher's chief of staff, said the administration hasn't yet decided how much of the $279 million expected surplus this year that it will ask the General Assembly to pump into the retirement system.

 

Because of the way the fund's accounting works, new money paid into the system's accounts can have almost an exponential effect on reducing the shortfall.

 

For example, an infusion of $100 million could, in fact, slice the expected deficit by several hundred million or more.

 

Cave said the actual calculations aren't finished.

 

"If we are able to take a portion of the surplus and put it into the funds, that should affect the assumptions that the actuaries make and reduce the total deficit," Cave said.

 

He said he hopes to announce how much of the surplus should be diverted next week.

 

The governor has been touring the state in recent weeks holding "town hall meetings" to solicit ideas from Kentuckians about how they'd like the estimated surplus to be spent.

 

Fletcher has mentioned putting some of the money into the retirement system, as well as other suggestions, such as squirreling part away in the state's "rainy day fund," offering tax rebates or putting more into education and health programs.

 

Charles Wells, executive director of the Kentucky Association of State Employees, said the financial stability of the retirement system is "the most critical threat that state employees have in front of them right now."

 

Wells said Fletcher, previous governors and the General Assembly deserve blame for regularly underfunding the retirement system to use money for projects and other programs.

 

"If the governor wants a stable, competent and qualified work force, then he's got to shore up the retirement system," Wells said.

 

Earlier in the week, Lt. Gov. Steve Pence told the Herald-Leader that one long- term solution might be to look at offering a system similar to a 401k that many businesses use, in which employees pay money, which often is matched by their company, into a retirement fund.

 

That way, state workers could have more flexibility if they wanted to leave the state payroll for the private sector.

 

Pence said that all current obligations to retirees and state workers should still be met no matter how the system is changed.

 

Wells said employees are opposed to that because new employees would no longer be putting money into the larger system.

 

"This is going to be a big issue in next year's governor's race," Wells said.