Politics & Government

Kentucky legislature passes plan to shore up state's pension system

Senate President Robert Stivers, center, talked with Senate Floor Leader Damon Thayer, left, and Sen. David Givens during a recess at the Capitol in Frankfort, Ky., on Tuesday, March 26, 2013. (AP Photo/Roger Alford)
Senate President Robert Stivers, center, talked with Senate Floor Leader Damon Thayer, left, and Sen. David Givens during a recess at the Capitol in Frankfort, Ky., on Tuesday, March 26, 2013. (AP Photo/Roger Alford) AP

FRANKFORT — The Kentucky House and Senate overwhelmingly passed a plan Tuesday night that would generate about $100 million in additional revenue for the state's ailing pension system and move new hires into a 401(k) hybrid plan.

House Bill 440, a funding bill, and Senate Bill 2, which contains changes in the pension plan, passed overwhelmingly on the last night of the 30-day legislative session. Gov. Steve Beshear, who helped craft the compromise pension plan, said Tuesday night in a news conference with legislative leaders that "the looming pension liability threatened to gut funding for education and all other priorities. It demanded our immediate and bipartisan cooperation."

After two days of back-and-forth proposals, the final plan emerged Tuesday. It relies on changes to the tax code to generate an additional $95.7 million for the fiscal year that begins July 1, 2014, and $99.9 million for the following fiscal year.

The plan relies on reducing an individual tax credit from $20 to $10. Previous plans discussed Monday and Tuesday would have done away with the tax credit. The compromise plan does not cut the gasoline tax, a proposal that had been rejected in previous plans.

House Bill 440, the pension funding bill, would make other minor changes, including closing some tax loopholes for businesses. The state also would use about $30 million in additional money generated from changes to the federal tax code.

The pension fund has roughly half the money it needs to pay current and future retirees. The unfunded liability for the pension system is $33 billion.

House Speaker Greg Stumbo, D-Prestonsburg, said before the vote on SB 2 that the pension fix was not perfect. But the House and the General Assembly should be proud that it has found funding for the pension system, which no other state has done, he said.

Stumbo said the pension plan would honor the contract with current employees and retirees. "Our responsibility is to them," Stumbo said. "They don't have to worry anymore."

But state and county employees may not like the compromise agreement. Some are concerned that the money is not earmarked for pensions.

Instead, it would go into the general fund and would have to be redirected by the General Assembly to the pension system.

"It's all smoke and mirrors," said Rep. Mary Lou Marzian, D-Louisville, of the funding plan.

Beshear said he was not concerned that the funding bill does not have "a dedicated revenue stream" for payments in the future because he believes the General Assembly will remain committed to funding the required contribution.

Senate President Robert Stivers, R-Manchester, said if the state had a dedicated revenue stream for paying off the unfunded liability, an alternative plan would be needed if it does not raise enough money.

The state has not contributed its full amount to the pension system in more than a decade.

State employee also don't like moving new employees to a new hybrid plan that would guarantee retirees a 4 percent rate of return on investments, rather than a defined-benefit pension.

Brian O'Neill, a firefighter from Louisville, said that many firefighters agree to work for less pay, knowing that they will be eligible for a pension. "We're going to have a hard time attracting new people," O'Neill said. "Do you really want a firefighter who is 50 years old saving you from a fire?"

Stumbo said he had hoped to keep the defined-benefit plan for future hires, but House Democrats weren't able to reach that agreement with the Republican-controlled Senate.

Stumbo said the compromise bill does include a mechanism for retirees to receive a cost-of-living increase if there is money available. The Republican version of the pension fix would have done away with all cost-of-living increases.

Rep. Denny Butler, D-Louisville, told House members during debate on Tuesday that he was going to vote for the pension fix because he was told that the expansion of lottery sales would be used to fund cost-of-living increases in future years.

A fix for the ailing pension system had been the top priority of the 30-day legislative session. Beshear had warned legislators earlier Tuesday that if an agreement were not signed by midnight, a special legislative session was likely. A special legislative session would have cost taxpayers more than $60,000 a day.

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