Republicans uncorked a surprise 291-page proposal Thursday afternoon to overhaul Kentucky’s ailing public pension systems and gave it final approval hours later as the chants of angry teachers echoed through the Capitol late into the night.
The public never had a chance to look at the bill before the Senate voted 22-15 to give it final passage at 10:15 p.m. and sent it to Gov. Matt Bevin for his signature or veto.
“Tonight 49 members of the Kentucky House and 22 members of the Kentucky Senate voted not to keep kicking the pension problem down the road,” Bevin posted on Twitter. “Anyone who will receive a retirement check in the years ahead owes a deep debt of gratitude to these 71 men & women who did the right thing.”
House Majority Floor Leader Jonathan Shell and state Rep. John “Bam” Carney, chairman of the House Education Committee, introduced their proposal to the House State Government Committee as a substitute to Senate Bill 151, which had dealt with sewer system regulations. The committee then promptly approved the amended bill and sent it to the full House, which began debating the measure minutes later.
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“After days and weeks of lying to the public about Senate Bill 1 being dead it was reworked a little bit,” state Rep. Angie Hatton, D-Whitesburg, said of the pension reform bill that has been stuck in the Senate for weeks. “And instead of being flushed out, it was flushed into this House floor as an amendment to a sewage bill.”
After more than three hours of debate, the House approved the bill 49-46 and sent it to the Senate, where debate began within minutes.
No actuarial analysis has been done on the bill, as required by law, so its fiscal impact on the state’s pension systems is unclear. They have an unfunded liability of more than $40 billion.
Republican lawmakers hailed the bill as a compromise.
“This is SB 1 without the provisions people were concerned about,” said Rep. Chad McCoy, R-Bardstown. “We listened to you, we heard your concerns and we took those things out.”
During the House debate, Carney said the bill would provide “zero” short-term savings in the next two-year state budget, but he expects that ratings agencies encouraged by signs of pension reform will raise Kentucky’s credit ratings, making borrowing cheaper.
According to a summary, the bill would place teachers hired after Jan. 1, 2019, in a hybrid cash-balance plan at Teachers’ Retirement System of Kentucky rather than a traditional pension, but it would not reduce the annual 1.5 percent cost-of-living adjustments for retired teachers, which was a controversial part of Senate Bill 1. Retired teachers in Kentucky do not get Social Security benefits, so any freeze in their pensions affects their total retirement income.
Retirement eligibility for future teachers would increase to age 65 with five years of service or the “rule of 87” (when the employees’ combined age and years of service equal 87). The “inviolable contract” that protects reduction in future employee benefits would be limited to account balances in the cash-balance plan. Cash-balance plans are less generous than a traditional defined-benefits pension but offer more retirement security than a 401(k)-style defined-contribution account.
Contribution rates would be 9.105 percent of salaries for teachers, with the state kicking in 6 percent and school districts providing another 2 percent. For educators at state universities who participate in the pension system, the employee contribution rate would be 7.625 percent, with a 4 percent employer contribution.
Current teachers could not count payments for sick leave days accumulated after Dec. 31, 2018 toward their retirement benefits.
For state workers who are enrolled at Kentucky Retirement Systems — and who who have been placed in hybrid cash-balance plans since 2014 — sick leave could not be used for the purposes of retirement eligibility “or to reduce applicable actuarial penalties for retirements occurring on or after July 1, 2023.” A state employee who retires after Jan. 1, 2019, and returns to a state job would not get a second retirement account at KRS.
State retirees also would lose a $5,000 death benefit, payable to a designated beneficiary, state Rep. James Kay, D-Versailles, said in the House floor debate.
As lawmakers debated in the House, a vocal group of about 70 teachers shouted protests outside the chamber.
“Vote them out,” they cried.
“We’re madder than hornets,” said retired teacher Claudette Green of Lexington, who taught in Elliott and Carter counties.
Some of the protesters had difficulty entering the Capitol. Bradford Queen, a spokesman for Democratic Secretary of State Alison Lundergan Grimes, said she called Kentucky State Police Commissioner Rick Sanders late in the afternoon because locked Capitol doors kept teachers from entering the building while the legislature remained in session. Sanders was not available for comment.
Advocacy groups for public employees protested Thursday that sweeping changes were being made to the pension systems with no chance for the public to review them.
“Introducing a cobbled-together pension bill grafted on to a sewage bill in the waning days of the session without actuarial analysis and an opportunity for meaningful feedback is an insult to stakeholders,” said Jim Carroll, spokesman for Kentucky Government Retirees. “The latest version of the pension bill assaults the contract rights of most KRS-covered employees. There is no reason to believe it will produce significant reduction in liabilities. KRS stakeholders remain adamantly opposed to changes to a pension system that was comprehensively reformed just five years ago.”
Pensions are an important part of the benefits package for teachers, said Brent McKim, president of the Jefferson County Teachers Association.
“Forcing new teachers into a cash balance retirement plan will hurt their retirement security and will undermine the commonwealth’s ability to compete with other states to attract and keep quality educators. Also, rushing the bill through without an impact analysis, as required by law, is not democratic and invites expensive litigation that could void the bill if it is passed into law,” McKim said.
According to Kentucky Revised Statute 6.350, any bill that makes changes to the state pension systems shall not be reported from committee unless accompanied by an actuarial analysis.
Over the objections of Rep. Jim Wayne, D-Louisville, who said the bill was illegal, the committee disregarded the statute, citing a Supreme Court ruling. Later, Stivers contended that the actuarial analysis completed for Senate Bill 1 is sufficient for the new bill.
The House plan comes on the 57th day of this year’s 60-day lawmaking session. Lawmakers have been grappling with the pension issue for months, but have failed to reach consensus on how to address the problem in the face of overwhelming opposition from teachers and other public workers.
“This is a solution that will help ensure the solvency of our pension system for years to come,” said Carney, R-Campbellsville, when introducing the bill on the House Floor.
The proposed cuts to teachers’ cost-of-living adjustments in Senate Bill 1 made up most of the $3.2 billion that legislation was projected to save. Without the COLA cuts, Carney said, the latest pension plan will save around $300 million over the next 30 years, or less than 1 percent of the state’s $40 billion unfunded liability.
When asked why the bill should be passed if it saves little money, Carney said the legislation would still help solidify the state’s credit rating and that moving new hires into cash-balance plans will reduce the state’s pension liability after 30 years.
He also said the plan will help House and Senate Republicans compromise on a state budget, though it was unclear how the pension bill would impact the budget.
“I think it keeps the budget in play,” Carney said.
Senate President Robert Stivers, R-Manchester, said late Thursday night that there will be legislation in the last days of the session to provide financial relief to local governments facing huge increases in their pension contributions in the fiscal year that starts July 1.
But he said it would not be in the form of Senate Bill 66, which places a 12 percent cap for the next decade on increases in pension contributions required by cities, schools, libraries and regional universities. Without the cap, some local governments would see increases of 70 percent or more.
Through all stages of the debate, Democrats strongly objected to the bill as the muffled cries of teachers could be heard through the doors.
“The question is how can you guys shave in the morning without cutting your throat,” state Rep. Tom Burch, D-Louisville, asked Republicans.