As Kentucky legislators debate the future of the troubled state pension system, which faces many billions of dollars in unfunded liability, their own public pensions are separately managed and better funded.
Legislators, who meet from 30 to 60 days every winter, are eligible for publicly subsidized pensions and retiree medical, disability and death benefits. The average beneficiary gets $20,663 a year. The state paid more than $2.2 million into their pension plan over the last four years; they paid $1.2 million.
For much of the last decade, the legislators' plan was so well funded that it enjoyed a surplus. Only in 2009 did the legislators' plan start to see an unfunded liability, due in part to fatter pension benefits that legislators approved for themselves four years earlier.
Over this same period, however, governors and legislators failed to fund the state workers' pension plan anywhere near recommended levels. As a result, the state workers' plan covering 114,904 people is only 38 percent funded — falling $6.7 billion short of expected costs — compared to 64 percent for legislators.
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"It just seems like we've paid more into our plan than we've paid into the state plan," said Gene Huff, a former state senator who sits on the board overseeing legislative and judicial pensions. (State workers' pensions are managed elsewhere, at the Kentucky Retirement Systems.) "Early on, the legislative plan required a higher funding level and we met that."
The billions owed to state retirees is a campaign issue this gubernatorial election year, and it's earning Kentucky unwelcome national attention. Banks and financial analysts routinely rank Kentucky's pension system as among the nation's most debt-ridden, which puts the state as a whole on shaky ground. Every dollar diverted to shore up pensions must come from new taxes or additional spending cuts.
Later this month, a legislative committee in Frankfort will hear from state Auditor Crit Luallen, who is completing her review of the state pension system. Republican senators have proposed ending the current model of guaranteed pension checks and putting future state workers in private investment accounts, much like a 401(k), shifting the burden to them to save enough for their retirements.
Lifeboats vs. yachts
State workers say they don't deny that their pension plan is a shambles. But they ask why they're getting leaky lifeboats while the legislature equips itself with yachts.
"We find it curious that state workers did what they were supposed to do and contributed the necessary portion of their paychecks toward their retirement, and yet the legislature said it was not able to match it. But they were able to fund their own pensions above and beyond what they needed to," said David Smith, president of the Kentucky Association of State Employees.
Others ask why a part-time "citizen legislature" is entitled to pensions in the first place. Most of the 138 legislators hold jobs back home or are retired from other careers.
"How many part-time employees in Kentucky outside of the legislature are given a fully funded pension and Cadillac medical benefits when they retire?" asked Jim Waters, spokesman for the Bluegrass Institute for Public Policy Solutions, a free-market think tank in Bowling Green.
"This goes to the heart of Frankfort's real problem, which is the sense of entitlement," Waters said. "The founders of our state, who wrote our constitution, never intended for people to go to Frankfort and make a lifetime career out of being a state legislator. Yet, there they all are."
Finding the money
Lawmakers agree their pensions are better funded, but they said they did not seek to favor themselves. Rather, they said, their pension plan is smaller and cheaper, requiring hundreds of thousands of dollars a year, compared to the more daunting hundreds of millions of dollars for state workers' pensions.
"If the point of this story is that the state has not fully funded the Kentucky Retirement Systems, then my response would be that it cannot be fully funded because it's simply unaffordable," said Senate President David Williams of Burkesville, the Republican nominee for governor.
Williams has pushed, unsuccessfully, for several pension changes, including a shift to private 401(k) accounts and the elimination of legislative pension sweeteners enacted in 2005.
The current pension model is not sustainable, Williams said, although it won't be state retirees who go without, it will be the rest of state government.
"It doesn't really matter which system is funded better because we have an inviolable contract with everyone to honor their pensions. The only question is, where are we going to get the money?" Williams asked. "A legislator's retirement is no more or less secure than someone's who works at the state highway department. The state has the same obligation to both."
House Speaker Greg Stumbo, D-Prestonsburg, said another difference is that legislative and judicial pensions are wisely invested at the Judicial Form Retirement Systems and produce solid returns. By contrast, Stumbo said, "there continues to be inadequate management and oversight" at the Kentucky Retirement Systems, which invests state workers' pensions.
"Everybody got a boat. The only difference is, they ran theirs up on the rocks and it's leaking," Stumbo said.
'Bad times coming'
Legislators also defended their need for public pensions, which they first awarded themselves in 1980.
They said the legislature may only formally meet in the winter, but committee hearings throughout the year and contact with constituents make it a full-time job that limits their other sources of income.
"I would go before our Lord and say that if 40 hours a week is full time, then I am a full-time legislator," said House State Government Chairman Mike Cherry, D-Princeton. "I consider it legislative work if I'm doing things I would not otherwise be doing. For example, just today, I had constituents sit on my porch for two hours to discuss some highway work we have going. Shouldn't that count?"
Williams, a lawyer, said his law practice shriveled because he spent more time in Frankfort as Senate president, costing him "six figures a year" in lost income. Most self-employed people, such as doctors, farmers and business owners, cannot easily swallow those sorts of losses, Williams said.
"If you want to have a citizen legislature, then you have to offer a compensation package that's enough for normal people to serve without sacrificing their retirement security," Williams said.
Smith, president of the state employees' group, said he doesn't necessarily object to legislators getting pensions. But they should be enrolled in the same plan as everyone else, Smith said.
"What makes them any better than us? Do they not work for the same state as the front-line workers — the social workers, the state police — who are looking at an uncertain future in their retirements?" Smith asked. "If bad times are coming for us, why aren't bad times coming for them?"