Lawmakers Consider Pension Loophole

For the third year in a row, Kentucky lawmakers will consider the repeal of loophole that has resulted in some lawmakers receiving lifelong annual pensions of more than $100,000. The measure approved six years ago allows state representatives and senators to calculate their legislative pension based on their highest three years of salary, even if that salary came from another state job.

For example, when Charlie Borders was appointed Commissioner of the Public Service Commission after serving 18 years in the General Assembly, he received a significant pay increase. When he retires, Borders' legislative pension will be based his PSC salary, which is currently more than $122,000 a year.

"When this bill passed, I don't think most people understood actually what the bill would do," says Sen. Jimmy Higdon (R-Lebanon). "I don't think they ever imagined it being as lucrative as it is."

Higdon has pre-filed legislation that would close the reciprocity loophole. The measure has the support of Democratic Representative Mike Cherry, who plans to file a similar bill.

For the past two years, Kentucky lawmakers have not been able to reach an agreement on the pension problem, although Cherry is hopeful the General Assembly will "get its act together" when the 2012 session convenes in January.

Higdon has also proposed legislation that would establish a defined contribution system and close the Legislators' Retirement Plan to anyone who takes office after July 1, 2012.

"Future state representatives and state senators will be in a 401(k)-type retirement plan, similar to what some of us would like to see done for state government as well."

The Legislators' Retirement Plan currently has an unfunded liability of 41 percent. Higdon says changing the retirement plan for lawmakers could pave the way for switching to a 401(k) style plan for state workers.