Kentucky lawmakers advance a bill to reduce their separate, fatter pension benefits
Weary of headlines about how generous and solidly funded their legislative pension plan is compared to the one for state workers, Kentucky lawmakers are advancing to the House floor a bill that would make some changes.
House Bill 270 would transfer the 45 lawmakers who have taken office since 2014 into the state workers’ pension plan at Kentucky Retirement Systems, the one that’s only 13 percent funded and has a $14.2 billion shortfall. Anyone elected to the General Assembly in the future would join them there.
“I do believe that the legislators have to own the anxieties that our everyday people working in state government are living with,” said state Rep. Kelly Flood, D-Lexington. “We’re joining everybody else, because it’s time.”
For the 336 past and present lawmakers and their beneficiaries who remained in the legislative pension plan, the House bill would — as of July 1 — cut the “benefits multiplier” that would determine their payments in future years, from the current 2.75 percent to 1.97 percent. State workers get a 1.97 percent multiplier.
The bill, which the House State Government Committee approved last week, also would eliminate a controversial pension-fattening practice known by the legal term “reciprocity” after July 1.
Instead of multiplying their years of legislative service against an assumed legislative salary of $27,500, as they once did, lawmakers since 2005 have used their actual legislative compensation, which is likely to be closer to $40,000 once their expenses are thrown in, or even more for better-paid legislative leaders.
Or more lucratively: If lawmakers land a high-paying job at a state or local government agency enrolled in one of the other public retirement systems, they can multiply their new salary against their years of legislative service. Thanks to reciprocity, at least two dozen lawmakers collect or expect to get lifetime pensions above $50,000 a year from the legislative plan. A few draw more than $100,000 a year.
Finally, the House bill would prohibit the state of Kentucky from contributing any employer’s donations into the legislative pension plan until its funding level is the same as or lower than the state workers’ plan — which, again, currently stands at 13 percent.
“This is big,” House State Government Committee Chairman Jerry Miller, R-Louisville, said about the rule blocking further state funding for legislative pensions for the foreseeable future.
But it’s not clear how big that part of the bill really is.
An actuarial analysis attached to the House bill notes that the legislative pension plan this year is 103 percent funded, running a small surplus. The plan is on track to be 165 percent funded by the year 2039, according to the analysis. If the House bill becomes law, that figure won’t fall; instead, it will leap to 260 percent funded.
How could the legislative pension plan be better funded if the state withholds its contributions? Because, the actuarial analysts said, the bill would save more money by cutting the two pension sweeteners for lawmakers than it would lose in state revenue. Overall, the plan’s liabilities would shrink by 40 percent under the bill, they said.
Plus, the $117 million legislative plan is so well funded that it made more investment income last year ($7.6 million) than it paid in benefits ($5.4 million) without even considering contributions from its members or the state.
Still, the governing board of the legislative plan and its actuarial consultants sent letters warning lawmakers to reject the House bill. Without the state’s recommended contributions each year, one stock market crash and a prolonged recession could cut the knees out from under the plan and erode its funding level, requiring a costly bailout in the future, they said.
The state workers’ pension plan ran a surplus until the state decided to stop making the full recommended contributions 20 years ago. Now that plan costs the state budget more than $1 billion a year and is considered unaffordable to the agencies enrolled in it.
“This would be the exact set of events that led to the same under-funding situation with the other state plans,” said Donna Stockton-Early, executive director of the Kentucky Judicial Form Retirement System, which manages the legislative plan. “You’re just going to cost the commonwealth a lot more money in the long run.”
Several committee members voted against the bill. They argued that however politically unattractive the pension sweeteners might look today, they were promised to people elected to office, making them part of the “inviolable contract” meant to protect the retirement benefits of public employees.
“I think the inviolable contract is just that — inviolable. A pension is a promise,” said state Rep. Joe Graviss, D-Versailles.
“Why risk the lawsuits and entanglements and delays?” Graviss asked. “And it’s a slippery slope. If we can mess with the inviolable contract here, does that mean we also can mess with it at (the Teachers’ Retirement System of Kentucky)? Does that mean we can mess with it at any other system? That’s too sacred a domino to push.”
Graviss is sponsoring a competing measure, House Bill 349, that matches the other House bill in most ways, except it would make the pension sweetening cuts voluntary. Graviss’ bill is considered unlikely to get a vote.
Responding to criticism of the House bill, state Rep. Jason Nemes, R-Louisville, told his colleagues the state’s massive state worker and teacher pension debt keeps him awake at night. But it’s hard for lawmakers who have their own much better-financed pension plan to make a credible case for reforms, Nemes said.
“We are only an economic downtown away from (the state workers’ pension) system going belly up,” Nemes said. “Then, when I talk to my constituents and I say, ‘Which one do you think is the best funded?’, it’s almost a joke that it’s the legislative plan.”
“Our skin has to be in the game. We have to have the same tension points,” Nemes continued. “We ought not be funding ourselves until we fund the good people who work for us.”
