ICYMI: From the KCEP: What the Finally-Released Actuarial Analysis Tells Us About So-Called Pension Reform
By JASON BAILEY
Executive Director, Kentucky Center for Economic Policy
Today [Dec. 20] Governor Beshear released the actuarial analysis of the 2017 “Keeping the Promise” pension proposal that had been suppressed for the last two years. As expected and as we noted at the time, the report shows closing the existing plans and moving workers into 401k-style defined contribution (DC) plans would’ve cost more to give employees less.
The report has lessons that should apply to Kentucky’s pension debate in the future.
Moving to 401ks costs more than keeping existing plans
A centerpiece of the plan was to move new employees in the Kentucky Retirement Systems into DC plans rather than leaving them in the existing hybrid pension plan in place since 2013. But the report documents that the DC plan is more expensive, costing 4% of employees’ pay rather than the 3% cost of the hybrid plan. Benefits for new employees had already been cut so substantially that there was simply no room to save money from additional cuts, and this shift actually increased costs.