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Op-Ed: New Pension Law Could Still Lead to Reduced Services, Closed Doors

We left Frankfort at the end of March with a working group that was to study the university and quasi-government pension plans and recommend a permanent solution that we would take up in the next budget session of the Kentucky General Assembly. Instead, Governor Matt Bevin hastily called a special session that ended last week with piece of legislation that unfortunately may look like a dead end when the legislation’s short-term financial relief is over and its long-term and very costly consequences take effect for our public health departments, rape crisis centers, domestic violence shelters, and the universities.

If something doesn’t change before then, we could still see many of these agencies slashing services or even closing their doors, and potentially thousands of their dedicated employees will lose a substantial chunk of a retirement they have been counting on for years.

This is the reason I voted No on this bill. 

This is a scenario we cannot afford to let happen, and what makes it worse is that there was a better plan on the table that could have avoided this and that would have provided more certainty and stability for the affected agencies and taxpayers alike. It was more affordable for the quasi-governmental agencies; it was more actuarially sound than what was signed into law; and its costs were relatively small, especially when compared to what could happen under the governor’s bill.

This is a highly complicated matter, but it is important to understand how we got here. Two years ago, KRS’s Board of Trustees – which was significantly restructured by Gov. Bevin – dramatically lowered its assumptions overnight instead of phasing them in over years.

That sudden drop meant contributing employers, principally state and local governments, saw their annual payments to KRS go up substantially. In 2018, the General Assembly paid that full cost in the current state budget, gave local governments a five-year phase-in to their full contribution rate and provided a one-year rate freeze for the quasi-governmental agencies.

This past April, Gov. Bevin vetoed legislation that sought a second 12-month freeze and a long-term (but still problematic) solution for those agencies.  He offered a similar plan in early May, but it struggled to receive enough support in the General Assembly until earlier this month. Even then, it only received 52 out of 100 votes in the House, just one above the minimum that the House Speaker said was needed.

Under this new law, the affected agencies will decide in April which one of three main options they want to pursue when the next fiscal year starts on July 1, 2020.  They can stay in KRS and begin paying the steep increase in their monthly payments to the retirement system; they can leave KRS completely; or they can opt out of KRS while keeping career employees enrolled, a move that would cost the agencies much more than making a clean break with the retirement system.

In those latter two options, the agencies will still have to pay off their portion of KRS’s long-term liabilities, which will saddle the agencies with crushing debt for the next two dozen years or longer.

The law’s incentives, meanwhile, will all but force many agencies to make that clean break with KRS. That means benefits will be frozen for current employees, who will then be moved to a new 401(k)-style plan, costing some of them $100,000 or more in retirement.

A separate bill that many of my fellow House members and I supported would have taken a starkly different approach. Principally, this would have frozen the payments for the quasi-governmental agencies at their current rate for years to come; and, for a five-year period, would have moved excess payments to KRS’ retiree health insurance – funded at one of the highest levels in the nation – to the pension side of the ledger.

This route would have been legally sound, and it would have actually paid off KRS’ liabilities faster without putting the nation’s lowest-funded retirement system at greater risk. If the agencies are forced into bankruptcy because of the governor’s plan, the cost to taxpayers will sky-rocket even more.

It is important to note that this new law only affects agencies like our public health departments and regional universities. It does not have a direct impact on state and local government employees, teachers or other school personnel.

However, the legal precedent the law sets could form the foundation to remove future benefits from any group of public employees. This point will almost certainly be challenged in court, as will the nature of the governor’s specific call for the special session and whether the vote total in the House was high enough in a non-budget year.

If there is a silver lining beyond the rate freeze, it is that some of the new law’s supporters have promised to work on more sustainable solutions that hopefully will reduce the law’s full impact. 

I will be doing all I can to help in that regard.

State Rep. Dennis Keene is a Democrat from Wilder who represents northern Campbell County