Gov. Matt Bevin on Wednesday shared his plan for pension relief for Kentucky’s regional universities and “quasi-public” agencies, such as local health departments and mental health nonprofits. But the terms and price — a possible $827 million cost to the state’s already ailing retirement system — immediately gave fuel to critics.
“The new pension bill increases overall costs, compels the nation’s worst-funded state pension plan to serve as a creditor and encourages employers to force employees out of the state retirement plan. It is bad funding policy and should be summarily rejected by the General Assembly,” said Jim Carroll, spokesman for the Facebook advocacy group Kentucky Government Retirees.
Bevin is expected to call a special legislative session in coming days so lawmakers can consider a pension relief bill to replace the bill he vetoed last month. Unless lawmakers act, universities and quasi-public agencies face a staggering hike in their pension contribution rates when the new fiscal year begins July 1.
Bevin’s proposed bill, shared with lawmakers Wednesday, is similar in many ways to the one he vetoed.
It extends a freeze on pension costs for another year for universities and quasi-public agencies, holding them at 49 percent of their payroll instead of 87 percent, which is what the rest of state government pays. After that, the public employers must choose: Stay with Kentucky Retirement Systems at full cost or exit the state’s pension system, either by making one lump sum payment to clear their liabilities or setting up a 30-year payment plan that gradually increases each year.
Employees hired after 2013 would be enrolled in defined-contribution retirement plans. Longer-term employees could have the option of remaining in KRS and continuing to accrue traditional pension benefits if their employers agree to pay higher costs. Otherwise, they, too, would transfer into defined-contribution plans.
As an added incentive to get public employers to move all of their employees out of pensions and into defined-contribution plans, Bevin’s bill would offer the employers debt relief after 30 years if their installment payments had not entirely paid off their liabilities. There would be no such debt relief for public employers keeping longer-term employees in KRS.
Still, this choice was a key point for local health departments, which fear a rush for the exits among experienced workers who value their pensions, said Allison Adams, president of the Kentucky Health Departments Association.
“If we have a good 25-year employee who just needs two more years until their pension, then walking out the door to see if they can find another job in the (retirement) system just became a whole lot more attractive to them,” Adams said. “We stand to lose workforce that would be highly costly to train.”
Apart from cleaning up typos and date errors in the original bill, Bevin’s bill also softens language on the penalties public employers would face if they fell behind on their installment payments to KRS after choosing to exit.
The original bill called for the state to take over management of delinquent employers, freeze pension checks and permanently bump all employees into defined-contribution plans. Instead, Bevin’s bill would allow KRS to file a lawsuit to collect money owed, and it also would let the state intercept appropriations to the delinquent employers.
Hoping to head off more lawsuits from Attorney General Andy Beshear, his frequent legal opponent, Bevin included a section in his bill that prohibits the use of “state funds, employee time or other state resources” in any challenge to its “constitutionality.”
The Kentucky Center for Economic Policy, a think tank based in Berea, posted a copy of the bill and other information given to lawmakers on its website late Wednesday.
Jason Bailey, the center’s executive director, criticized the higher sums that Bevin would charge public employers for keeping their longer-term employees enrolled in the pension system. Bailey called it a “penalty” for agencies that choose to “protect their current employees.”
Senate President Robert Stivers, R-Manchester, told reporters after the last of two briefings Bevin aides provided Republican lawmakers that Wednesday’s discussion was “good,” but “it’s too early to talk about final details because questions were raised” about a lot of issues related to the bill, including funding and its impact.
Stivers said the administration needs to do some work on the legislation’s actuarial analysis, but “they are working fast and furious” to address a rate increase on July 1 that would require agencies to contribute as much as 87 percent of payroll for pension costs.
Bryan Sunderland, Bevin’s deputy chief of staff who oversees legislative initiatives, said all lawmakers would receive a “full briefing packet” on the latest proposal by the end of Wednesday.
“Once we get it to all members of the General Assembly, I assume it will be made public,” he said.
Bevin said Tuesday he plans to call a special session in May, possibly as early as next week but probably not Monday. Only the governor can call a special session and set its agenda. Lawmakers determine how long a session lasts.
Stivers said he did not know when a special session would start but he personally hopes it starts on a Monday so that it could be completed in five days. A special session is expected to cost taxpayers $66,434 a day.
The Republican leader noted that the Kentucky Constitution does not allow lawmakers to meet in session on Sundays but they would get paid for weekend work if they are in session.
“The preference is that we not be here at all,” said Stivers.
Senate Majority Leader Damon Thayer, R-Georgetown, told reporters before entering the first briefing that Bevin staffers would hold two meetings Wednesday for several lawmakers in anticipation of a special legislative session to be held sometime soon.
“The process is working. We will see what they got and see if we can keep this moving along,” said Thayer.
Sunderland and state budget director John Chilton conducted Wednesday’s briefings for lawmakers. Sunderland said he also would be briefing Democratic leaders in the two chambers — House Minority Leader Rocky Adkins of Sandy Hook and Senate Minority Leader Morgan McGarvey of Louisville.
McGarvey would not say if the new bill is better than the one Bevin vetoed. “We are still trying to digest all the specifics of the bill,” he said.
“This conversation should be guided on what is the ultimate cost of the bill. It still seems these options are going to cost the taxpayers a lot of money,” McGarvey said.