Gov. Bevin says pension relief bill is ready
Republican Gov. Matt Bevin wanted the special legislative session he called this week to consider only his own proposed changes to the state pension system. Lawmakers had other ideas when they convened Friday morning.
The Republican-controlled Kentucky House referred three bills to a committee hearing Saturday — Bevin’s plan, House Bill 1, and two Democratic alternatives, House Bills 2 and 3. Bevin’s detailed, five-page call for the special session was narrowly tailored, instructing the General Assembly to consider the one pension bill that he favored.
However, GOP legislative leaders said setting their agenda is their prerogative.
“I think in the committee, I have the power to do this. Even if it’s not consistent with the governor’s call, I can choose to hear a bill,” said House State Government Committee Chairman Jerry Miller, R-Louisville.
House Minority Leader Rocky Adkins, who had a fiery speech prepared to protest his members effectively being shut out of the discussion in coming days, quickly thanked GOP leaders for showing independence from the governor.
“The call that was made, in my opinion, was a very narrow call,” said Adkins, D-Sandy Hook. “It was a call that doesn’t only talk about the subject matter, but it is a call that basically writes the very legislation that we, in that call, have to consider.”
Bevin’s plan would encourage nearly 120 public employers to exit the Kentucky Retirement Systems next year, including regional universities, community and technical colleges and quasi-governmental agencies like county health departments and mental health nonprofits. Roughly 7,000 of their employees would have their pensions frozen and be shifted into less generous defined-contribution accounts.
In exchange for quitting KRS and paying off their existing pension liabilities, either in one lump sum or over 30 years, the employers would get certain financial incentives under Bevin’s plan. They also would enjoy one last year of a lower pension contribution rate — 49 percent of payroll — than the 84 percent paid by state government.
The Democratic alternatives would keep these employers in KRS and permanently cap their pension contribution rates at 49 percent. To help offset the cost, one of the Democratic plans would shift about $130 million in retiree health care funds to the pension plan.
The problem everyone is trying to address: KRS has $23.5 billion in unfunded pension liabilities due to two decades of inadequate state funding and unrealistic assumptions about investment returns and payroll growth.
Contribution rates that once were reasonable have exploded in order to pay down the shortfall. And Republican state leaders say they won’t continue to artificially cap the rates for universities, colleges and quasi-governmental agencies at 49 percent. Either cover the full cost of participating in the state pension system or leave, they say.
Some of the affected public employers, such as health departments, warn they would have to fire many employees or even close their doors if stuck with a pension contribution rate of 84 percent. At the same time, they worry about a wave of longtime employees suddenly leaving for other jobs if their pensions are frozen and replaced with a new 401(k) plan that won’t have enough time to grow before retirement.
On Friday, advocacy group Kentucky Government Retirees endorsed House Bill 2, one of the Democratic plans, while the Kentucky Association of Regional Programs, representing mental health nonprofits, said it’s keeping an open mind for any bill that includes a 49 percent cap on contribution rates for at least another year, as all three of them presently do.
“House Bill 1 (the governor’s proposal) is the one most likely to pass, it seems, so for us, we don’t have a big preference,” said Steve Shannon, executive director of KARP.
If the legislature passes Bevin’s plan, it could face a lawsuit. Public employees in Kentucky enjoy protection over certain benefits, such as pensions, in their “inviolable contract.”
Republicans counter by saying the affected public employers all have independent governing boards and are not technically part of state government, even if they are funded by it, so it’s debatable whether their employees are protected by the inviolable contract.
Even if the Democratic pension alternatives get a hearing on Saturday, there is no guarantee how much further they will proceed in a legislature where Republicans hold overwhelming majorities in both chambers.
Miller, the House committee chairman, said he’s concerned that if lawmakers do nothing, rising pension costs are going to wreck the budgets of many agencies that provide critical services in their communities.
“We have to take action. We have to do something,” Miller said.
Still, he added, “The two bills that were proposed by (Democrats), they are simply more of the same that we’ve had for the last 35 years. Which is, let’s inflate the assumptions or let’s kick the can either down the road or to the taxpayers. It makes little financial, economic or political sense to continue to do that.”