Andy Beshear’s budget fully funds pensions, undercuts legislature’s pension bill
Gov. Andy Beshear fulfilled his campaign promise of fully funding the state’s pension systems in his recommended budget Tuesday while providing partial pension relief for quasi-governmental agencies that were facing a stiff increase in pension contributions and giving a 1 percent raise to state employees.
Beshear, who won a tough election last year in part because of a pledge not to make cuts to the state’s pension systems, said he will provide both the Kentucky Teacher Retirement System and the Kentucky Employees Retirement System with their full requested contribution amounts.
“My promise to you is simple: I will always contribute the required contribution amount to our pension plans,” Beshear said. “By doing this year after year, we’ll protect your pensions and guarantee each of you a solid retirement.”
The Kentucky Employees Retirement Systems will receive an additional $56.5 million in the 2021 fiscal year and $63.9 million in the 2022 fiscal year. The Teachers Retirement System will receive an additional $500,000 in the 2021 fiscal year and an additional $14.8 million in 2022.
An additional $9.3 million in 2021 and $34 million in 2022 will go to increased health insurance contributions for state employees.
The retirement systems remain a significant portion of Kentucky’s $24.5 billion biennial budget as the state grapples with improving one of the worst-funded pension systems in the country. Over the past two years, the Republican-controlled legislature has tried to reform the system only to be met with protests by teachers and state employees.
The most recent effort at reform, approved during a special session last summer, involved a financial incentive for quasi-governmental agencies like regional universities, local health departments, community mental health centers and domestic violence centers forcing them to either pay the full cost of their pension contributions or exit the system, moving their employees into less generous, 401(k)-style retirement accounts in the process.
Beshear undercut the legislature’s leverage in his budget by freezing the pension contribution rate at 67.41 percent of payroll instead of the 93.01 percent of payroll they would be expected to pay under the new legislation — an increase from the current rate of 49.47 percent and still more than many of the agencies can comfortably afford. The budget would give $50 million each year to the quasi-governmental agencies to help them cover the costs.
Republicans leaders have framed their legislation as a necessary step to wrangle the state’s pension problem — with its $30 billion unfunded pension liability — under control. Democrats warned that the bill put the retirement plans of around 6,700 people at risk.
Beshear’s freeze wouldn’t change the fact that the quasi-governmental agencies will have to make a choice on whether to stay in the system or leave, but it could make staying in the system more appealing, which was the opposite of the legislature’s intent when it passed the bill.
House Speaker David Osborne, R-Prospect, and Senate President Robert Stivers, R-Manchester, were reluctant to comment on Beshear’s treatment of the quasi-governmental agencies, saying they hadn’t been briefed on the budget before Beshear’s speech and didn’t know the numbers.
“I think there’s interest in trying to ease the pain of the quasi-governmental agencies,” Osborne said. “But again the problem that we are faced with in trying to evaluate what he’s proposed is this is the first time we’ve heard about it since the election. He’s not mentioned it to me or anybody in our caucus, also I don’t think he’s mentioned it to anybody in the Senate, so I think it’s impossible for us to speculate at this point.”
In Beshear’s budget, state employees would also receive a 1 percent salary increase in both 2021 and 2022. State employees have not had a salary increase in eight of the last 10 years and the raises would cost the state $8.5 million in 2021 and $23.5 million in 2022.
“This is long overdue and with the costs of everything from groceries to pharmaceuticals going up, it is necessary,” Beshear said.
Beshear hailed the budget as the first to not include any cuts since before the Great Recession. He said a combination of sweeping excess funds, “maximizing resources” and four bills that would increase revenue would allow the state to pay for all of his proposals.
This story was originally published January 28, 2020 at 7:12 PM.
