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McDaniel's Plan Could Stave Off Pension System Catastrophe

"Pension reform will be the defining issue of this session and if we don't deal with it, it will be the defining issue of this decade."

State Senator Chris McDaniel (R-Taylor Mill & northern Kenton County) has only spent four official days in Frankfort but it did not take long for him to be certain that the most important issue in Kentucky is pension reform. "This is a $19 billion problem in front of us," he said Tuesday night at Northern Kentucky Forum's preview of the 2013 General Assembly whose thirty-day session begins the first week of February. "The financial underpinning of the Commonwealth is at stake."

McDaniel has already made a positive impression on one of the Senate's most powerful Republicans, Damon Thayer of Georgetown. "He brings a level of thoughtfulness to the discussion that we needed," Thayer said at Tuesday night's forum. That remark followed McDaniel's announced opposition to tolls to help finance the Brent Spence Bridge project, but it could also apply to his approach to pension reform.

In fact, the new legislator, who replaces longtime Senator Jack Westwood who retired, may have some much needed answers for the pension problem. The president of McD Concrete Enterprises has put together a slideshow detailing the financial repercussions of not acting on pension reform while offering what he sees as solutions to the whole thing.

The River City News got an exclusive look at the plans.

McDaniel calls his presentation, "Kentucky State Pension Plans: A System in Crisis". 

Crisis is an appropriate word to describe the situation as taxpayers, public employees, and retired public sector workers have millions of dollars on the line. A recent report by the Pew Research Center shows that Kentucky's overall system is only twenty-seven percent funded, one of the worst in the nation. The strain on municipal and county budgets in terms of pension contributions and the stress on employees only add to the urgency of finding a solution.

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See: Pew Center study on Kentucky Pension System Click Here

See: A breakdown of the numbers by cn|2's Ryan Alessi Click Here

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Sen. McDaniel has a timeline for what he believes will be the breaking point for each piece of the public pension system. Starting in 2017, pension programs for state police and state bureaucrats would be insolvent. In 2020, police and fire. In 2027, teachers and in 2028, county and city workers.

"We are in the worst shape of any state in the nation," he said. "We are not that far from catastrophic problems. We may be the poster child of what happens in the event that this collapse happens."

"This plan prevents that."

That plan includes three goals: making the systems solvent, honoring commitments to current retirees, and the easing of the financial burden on local governments and schools/universities. Some of the plan is derived from the legislative task force on pension reform, including no cost of living increases until the pension plans are solvent, transition to a hybrid cash-balance plan, and increase the re-employment timeline.

McDaniel also wants to see the repeal of lifetime pensions for part-time state legislators. He declined to accept his own. "It's leadership from the front," he said.

As for the strain on cities which currently pay upwards of 37.9% of the salaries of employees in hazardous positions ad 19.58% for non-hazardous employees, McDaniel believes those numbers should be 9% and 7.5% respectively, starting with new hires once reform is passed. He wants to see $250-300 million allocated to fully fund the state's ARC (actuarially required contribution) rate. McDaniel also disagrees with the Kentucky Retirement System's decision to use a one-time savings of $1.2 billion from health care reform to lower the rate of health care contributions by employees.

"I want KRS to keep a separate account to make up for the years where we have a shortfall," he said.

The senator expects to see a bill before the General Assembly within the first week of the new session. "It's been through a pretty thorough process already," he said.

"This is a good plan. It's fair to current employees and retirees," McDaniel said. "It allows cities and counties to out from the crushing burden they're under. I believe if we don't get this done this session, it would be catastrophic for current employees and retirees."

See also: Legislative Forum: Tolls for Brent Spence Bridge Won't Pass General Assembly

Written by Michael Monks, editor & publisher of The River City News

Photo: Sen. Chris McDaniel