(Reuters) - Kentucky's governor and legislative leaders on Wednesday unveiled a plan they said will rescue the state's pension funds from becoming insolvent without breaking retirement promises made to public-sector workers.
The state has been struggling to come up with a way to address a $64 billion unfunded liability for its eight pension plans covering state and county workers, as well as teachers, that has weighed on its budget.
Governor Matt Bevin said the state would be mandated to make a full actuarially required pension payment annually.
"This is a big, big cost to the people of Kentucky," he told reporters, adding that the yet-to-be-determined higher cost will be dealt with in a "brutally difficult" legislative budget session.
The plan, which would take effect on July 1 if passed by the Republican-controlled legislature, would create a 401(k)-like defined contribution program for most new hires and eventually for most current workers. It also suspends cost-of-living increases for some current and future retirees.
In fiscal 2016, Kentucky's pensions were just 31.2 percent funded, which was the lowest funded ratio after New Jersey's among the 50 states, according to a recent S&P Global Ratings report.
The Republican governor, who has not yet called a special legislative session on the proposal, said it should boost the state's credit ratings that have sagged due to the pension problem.
"This will stop the bleeding, put forward a very definitive and clear and statutorily required solution and it is that solution that is going to give a tremendous amount of encouragement to the credit rating agencies with respect to how they look at Kentucky," he said.
(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis)