While officials in state government have had a lot to say about problems in the state’s public employee and teacher retirement systems, a pension system that is not facing financial strain is the one for state legislators.
The retirement systems for state workers, teachers and hazardous-duty workers such as law enforcement officers have anywhere from slightly more than half to just 13.8 percent of the funds they need to meet obligations to retirees.
The legislative pension system, however, has 79 percent of what is needed cover to retirement payments to lawmakers.
State lawmakers are expected to be called into special session later this year to pass a bill to address the pension problems.
State Sen. Joe Bowen, an Owensboro Republican who is chairman of the public pension oversight board, said the legislative pension is in better shape because there are less pressures on it, it makes payments to a smaller group of people and makes lesser payments over a shorter period of time than the other pension systems.
“I’m not defending the legislative retirement plan,” Bowen said Thursday. “I don’t even think we should have a legislative retirement plan.”
The legislative fund is in better condition, despite the fact that it hasn’t been fully funded over the years, Bowen said.
“The funds for the (county employee retirement system) has always met the actuarial required contribution,” Bowen said. “They’ve met the ARC … but they are only 59 percent funded.”
Meanwhile, the legislative fund “received $20 million less than that ARC provided for” over the years, Bowen said.
How can a plan that wasn’t fully funded be in better condition than a retirement plan that was?
“The retirement plan’s expense can have a large effect on the funding level,” Bowen said.
“The basic reasons why this plan is at a higher funding level than other plans is because legislators have a higher age and lower salary than employees do,” Bowen said.
Most legislators earn $188 for every day they are in session, and the same rate for any meetings they attend during the interim, according to media reports. Bowen said legislators don’t qualify to receive retirements until they have served at least six years.
Most legislators, Bowen said, aren’t in state government long enough to receive the “full” pension that workers receive after 27 years of service.
“Legislators don’t stay in the process that long to reach that retirement age,” he said.
There are fewer people drawing pensions in the legislative system than in the other systems. Bowen said legislative fund has “around $95 million” to provide payments to about 350 retirees.
Legislators are generally older than the average state retiree, so they don’t draw pensions for as long a period of time, Bowen said. All of those factors result in fewer financial pressures and in less need to receive larger returns on investments, he said.
“With these smaller plans, you’re able to invest in (bonds) and low-risk stocks that don’t have the risk other plans have,” Bowen said.
Legislators taking office after Jan. 1, 2014 — like state employees — are on a “hybrid 401(k)” plan, which provides a guaranteed return of 4 percent on contributions, and 75 percent of any earnings over the 4 percent.
Any changes made to the pension systems by legislators during the anticipated fall special session will affect the legislative pension plan, Bowen said.
“It will comply with all the same standards” as other plans, Bowen said.