Pension system takes its toll

Kentucky’s state pension system is, by any measure, a mess – more than that, a fiscal disaster waiting to happen. Combined, the retirement systems for teachers and government employees face a deficit of $26.6 billion in unfunded liabilities. A big problem, most observers say, is a history of overly liberal rules that allow employees to retire too early with too-generous benefits.

But hey, things could be worse. It could be New Jersey – where officials are facing a $113 billion shortfall. So Kentucky Gov. Steve Beshear’s pension reform proposal, announced late last week, is being seen as a painful but needed step.

For current employees and retirees, the yearly cost-of-living adjustment would be lowered (from the present 3 percent) and fixed at 1.5 percent, a figure that couldn’t increase unless the legislature proves it already has the funds to do so. It looks for ways to reduce health insurance costs and expand wellness programs, and reins in “double dipping” – collecting two state pensions. But the real savings would come with future hires: They would have to work for 30 years and would have to be at least 55 years old to be elegible for retirement benefits. To workers in the private sector, that seems like an outrageously sweet deal, but it’s at least three years longer than under the current system.

That brings us to New Jersey, which has been even more generous than Kentucky over the years. Gov. Jon Corzine, the Wall Street Journal reported Saturday, is cracking down on the state’s retirement system – raising the retirement age to 60 for new hires and insisting that employees contribute to health insurance premiums. New Jersey, the Journal rightly concludes, is "where decades of tax and spend politics is reaching its logical conclusion."

Corzine's way-belated pension reform will help some. But fixing New Jersey’s gigantic unfunded liability will take more – so Corzine is proposing to borrow $38 billion in bonds using the state’s toll roads as collateral, then pay them back by raising tolls on the New Jersey Turnpike and other highways by 50 percent every four years.

Tolls? Where have we heard that idea before? And will we hear it again? Beshear's plan won't even reduce the $26.6 billion shortfall, just slow its growth rate.

Maybe the future of Kentucky is now. And it’s in New Jersey.