Politics & Government

GOP pension bill rejects many changes sought by Bevin, but teachers still face cuts

New pension bill 'brings us back from the brink of insolvency'

State Sen. Joe Bowen, R-Owensboro, tells colleagues on Tuesday, Feb. 20, 2018, about the importance of Senate Bill 1, which he filed to overhaul Kentucky's ailing public pension systems.
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State Sen. Joe Bowen, R-Owensboro, tells colleagues on Tuesday, Feb. 20, 2018, about the importance of Senate Bill 1, which he filed to overhaul Kentucky's ailing public pension systems.

With the 2018 General Assembly more than halfway finished, Senate Republicans on Tuesday filed the long-awaited bill that they said will make systemic changes necessary to protect Kentucky’s public pension systems, which face an estimated $40 billion funding shortfall.

“We have put countless days and weeks into drafting a bill that, in fact, saves the pension systems,” Senate Bill 1’s primary sponsor, state Sen. Joe Bowen, R-Owensboro, said in a Senate floor speech Tuesday evening. “We were elected to solve big problems. And this plan, Mr. President, unravels the biggest fiscal crisis Kentucky has ever faced.”

Tuesday was the 33rd day of the 60-workday session. The bill is expected to get its first hearing next week before the Senate State and Local Government Committee, which Bowen chairs.

Bowen said his bill rejects the most controversial recommendations made by Republican Gov. Matt Bevin in October. He said it wouldn’t force teachers or other public employees into 401(k)-style defined-contribution accounts, because a fiscal analysis predicted the switch would be too costly, and it wouldn’t force them to pay an extra 3 percent of their salaries for retiree health care.

However, legislative leaders said, new teachers would be required to work longer before they can retire with full benefits, and they would be enrolled in hybrid cash-balance plans rather than traditional defined-benefits pensions. Cash-balance plans are individual accounts that guarantee employees a minimum return on their investments. They are considered less generous than traditional pensions but more reliable than 401(k) plans.

Retired teachers also would have a harder time keeping up with inflation. Senate President Robert Stivers, R-Manchester, said their annual cost-of-living adjustment would be halved from 1.5 percent to 0.75 percent for 12 years. Bevin had proposed a five-year freeze in the adjustment for teachers, who are not eligible in Kentucky to collect Social Security retirement benefits — not for themselves or their spouses, if they survive their spouses.

State employees hired over the last five years already have been enrolled in hybrid cash-balance plans, and state retirees have not seen a cost-of-living adjustment in their pensions in years, so they would not see much change in these areas, legislative leaders said Tuesday.

However, there would be new restrictions on how public employees could use their unused sick leave, the leaders said. For example, Stivers said, state workers no longer could use unused sick leave to gain time credits and reach retirement age more quickly.

Bowen said lawmakers kept Bevin’s office informed about their progress as they drafted the pension bill during the first half of the legislative session, but the final result is entirely their own product. Speaking briefly to reporters earlier in the day, Bevin said only that he was satisfied to let the legislature debate the bill, and he was gratified that a bill had arrived.

Although legislative leaders answered a few cursory questions Tuesday evening, they deferred most explanation about the pension bill until a news conference scheduled for 10 a.m. Wednesday.

Senate Majority Leader Damon Thayer, R-Georgetown, said Bowen’s bill will be assigned to the Senate State and Local Government Committee, which Bowen chairs, possibly for a hearing next week. That should give the public a chance to study its contents, Thayer said.

The state of Kentucky operates two large pension systems that hold accounts for nearly half a million people: Kentucky Retirement Systems, for state and local government employees, and Teachers’ Retirement Systems of Kentucky, for educators. Between those two systems, the next two-year state budget will include $3 billion — or about 14 percent of the General Fund — for pension funding, Bowen said.

The systems face tens of billions of dollars in unfunded liabilities due to years of inadequate contributions by the state and unrealistic assumptions by state officials about investment returns and payroll growth. Teachers and other public employees give a portion of every paycheck to support their retirement benefits.

Even with the changes included in Senate Bill 1 and hefty sums of additional money in future state budgets, it will take Kentucky decades to shore up the pension systems, Bowen told his colleagues in the Senate.

“This is a 30-year plan,” Bowen said. “It took a long time to dig this hole and it’s going to take a long time to dig our way out.”

John Cheves: 859-231-3266, @BGPolitics

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