Politics & Government

Kentucky business leaders tell lawmakers to dump teachers’ defined-benefits pensions

Demonstrators held signs during a Nov. 1 rally at the Capitol against the Republican proposal to reform the state’s pension system.
Demonstrators held signs during a Nov. 1 rally at the Capitol against the Republican proposal to reform the state’s pension system. aslitz@herald-leader.com

Some of Kentucky’s wealthiest business leaders and best-connected Republican activists sent a letter to state legislators Friday warning that school teachers and other public employees are getting too sweet a deal on their pensions.

The one-page letter, apparently emailed to all members of the General Assembly, said any pension changes made during the 2018 legislative session must include “moving all future employees from a defined-benefits system to a defined-contribution system.”

Any pension bill that does not cut this benefit “willfully ignores the inherent structure problems at the heart of the crisis” and “is a disservice to the people of Kentucky,” the letter said.

Republican Gov. Matt Bevin likewise called for a switch to 401(k)-style accounts in a proposal he unveiled with GOP legislative leaders last October. But rank-and-file lawmakers rejected Bevin’s plan after facing protests from teachers in their home districts. So far, with the 60-workday legislative session nearly half over, legislative leaders say they are not yet ready to file a pension bill of their own.

Among the 19 people signing the letter were national anti-tax activist Grover Norquist; Mac Brown, state chairman of the Kentucky Republican Party and retired vice president of Brown-Forman Corp.; Larry Cox, retired state director for Republican U.S. Senator Mitch McConnell; Bill Samuels Jr., chairman emeritus of Makers Mark; Jim Stuckert, former chairman and chief executive of investment firm Hilliard Lyons; Terry Forcht, banking and nursing home magnate; Ed Glasscock, chairman emeritus of Frost Brown Todd; and Ann Wells, chairwoman and co-chief executive of Commonwealth Bank & Trust.

Collectively, the group has given huge sums to Kentucky political campaigns.

The private sector switched its employees to defined-contribution pensions decades ago, the letter said. In that model, employees must save enough money from their pay, sometimes matched by contributions from their employers, to carry them through their old age.

Unlike traditional pensions, the money can run out in a defined-contribution pension plan.

Governor Matt Bevin warned media at his 2017 year in review press conference that taxpayers in 2017, 2018, and beyond will have to pay for the pension obligation.

“Under the existing (defined-benefits) system, Kentucky taxpayers and businesses are forced to shoulder the entire burden of risk. Pension reform that fails to change the structure of the pension system is a disservice to the people of Kentucky,” the letter said.

“Misinformation and a false narrative have dominated this conversation for too long,” the letter concluded. “The interest of Kentucky taxpayers and the future of the commonwealth must take center stage. We the undersigned urge members of the legislature, in both chambers, to adopt bold pension reform that solves this crisis once and for all.”

House and Senate Republican leaders could not immediately be reached Sunday for comment on the pension letter.

The average pension benefit for a retired state government employee in Kentucky is $16,161, according to 2017 state data. For school teachers, who do not collect Social Security retirement benefits, it’s $36,244.

Kentucky faces more than $40 billion in unfunded public pension liabilities, due largely to decades of inadequate contributions by the state, disappointing investment returns and unrealistic assumptions about payroll and investment growth.

On Facebook, state Sen. Robin Webb, D-Grayson, posted a copy of the letter 20 minutes after receiving it Friday afternoon, expressing her irritation at what she took to be a private demand.

“I would welcome their testimony at a hearing on the subject,” Webb wrote. “Further, it continues to attempt to pit taxpayers against public employees and teachers when I would guess most, if not all, have received a benefit from both by offering protection to educating them, their children and their workforce and their children. Phase II of the attack has begun at the near-halfway point of our session.”

On Saturday, pension advocacy group Kentucky Government Retirees sent its own letter to legislators reminding them of the sacrifices public employees have made so far.

Over the past decade, as lawmakers struggled with the pension shortfall, health insurance costs were hiked for state retirees; the defined-benefits plan was closed for state workers (although not for teachers) and replaced with a less generous hybrid “cash-balance” plan; cost-of-living adjustments ended; and various other cuts were made to benefits, wrote Jim Carroll, spokesman for the group.

“What is left to ‘reform’ for Kentucky Retirement Systems?” Carroll asked.

He warned lawmakers that switching Kentucky’s future public employees to a defined-contribution plan would be costly, although it’s hard to say how costly because Gov. Matt Bevin has refused to release a financial analysis of his proposal for state employees.

Bevin’s proposal to switch teachers to a defined-contribution pension would cost an extra $4.4 billion, according to an analysis that was released.

“The single most important action that you can take to support pensions is to adopt the budget request that provides the full employer funding for KRS,” Carroll told the legislators.

John Cheves: 859-231-3266, @BGPolitics