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Analysis

New Projections Say Senate Pension Bill Is $206 Million More Expensive than House Plan

Jason Bailey | March 2, 2013

The Senate version of pension legislation will cost $206 million more than the House version over the next 20 years according to analysis of the new actuarial projections for Senate Bill 2.

The Senate plan would cost state government $59 million more than the House plan and is $147 million more expensive for local governments than what the House proposed, resulting in a total cost increase of $206 million. The projections come from the retirement system’s actuary, Cavanaugh Macdonald.

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Earlier analysis projected that switching to a hybrid cash balance plan for new workers rather than keeping the current defined benefit plan would add $55 million in state costs. The difference in state costs in this analysis is due to provisions related to early retirement for state police and hazardous duty workers that are included in the House version and save $4 million.

The new projection provides the first opportunity to estimate the impact on local governments of the cash balance plan and other measures in the Senate version of the bill.

While these estimates are a small percentage of what employers will pay over the next 20 years, it’s important to ask why Kentucky would add any more costs to the many billions that are already owed to the retirement system–especially since most workers prefer the current defined benefit plan while a cash balance plan will increase employee turnover costs and cut benefits for those who devote their careers to public service.

The expected employer cost of the current defined benefit plan for new workers is modest—ranging between 2.2 percent and 6 percent of what state and local governments spend on salaries for non-hazardous workers according to earlier estimates provided by Pew—as long as full contributions are made and any cost-of-living adjustments are paid for ahead of time.

The cost savings from the House version of the bill do not take into account the additional revenue the House is proposing to generate.

(Note: the Senate plan actually adds $216 million in pension costs relative to the House plan including $157 million in extra costs to local governments and $59 million to the state government. The $206 million figure used in this blog takes into account the impact on both pension and retiree health costs of the Senate plan relative to the House plan).

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