Session ends with last-minute pension deal

Plan will generate nearly $100 million a year, move new hires into 401(k) hybrid model

By Kevin Wheatley, Published:

The House and Senate overwhelmingly passed sweeping legislation to reform Kentucky’s beleaguered public pension system Tuesday, opting to move away from the defined benefit plan offered to public employees since the 1950s.

The House and Senate passed two bills – Senate Bill 2 and House Bill 440 – by wide margins on the session’s final day. The bills were sent to Gov. Steve Beshear for his signature or veto.

Beshear, who played a pivotal role in negotiations, has said he would not veto any pension reform compromise.

Pension reform was a, if not the, top priority in this year’s short 30-day legislation session. Lawmakers negotiated behind closed doors in recent weeks, hoping to reach an accord and avoid a special session.

Beshear and legislative leaders touted the bills as the result of bipartisan consensus during a press conference shortly after both chambers approved the plans.

“This spirit of cooperation and thoughtful discourse has allowed us to reach a bipartisan agreement, which solves the most pressing problem facing our state: our monstrous pension liability and the financial instability of our pension fund,” Beshear said.

SB 2 places new state and municipal workers, judges and legislators hired or elected after Jan. 1, 2014, into a hybrid cash balance plan and fully pays actuarially required pension contributions, which were among several recommendations by a bipartisan legislative task force.

Teachers and current public workers will not be added to the hybrid cash balance plan, which will establish individual accounts administered by the Kentucky Retirement Systems with benefits based on contributions and investment returns with a minimum 4 percent annual return guaranteed.

SB 2 also includes aspects of pension reform that cleared the House, such as creating a Public Pension Oversight Board and providing annual cost-of-living pay increases for retirees only when there are ample funds available or the General Assembly provides funds.

The legislation was lauded in the Senate, which passed SB 2 by a 32-6 vote. Senate Majority Leader Damon Thayer, a Georgetown Republican and the bill’s sponsor, said SB 2 will “avert a fiscal crisis” and protect KRS, which faces some $18 billion in unfunded liabilities, from insolvency.

“This is indeed one of the greatest policy achievements of this body and this General Assembly in recent memory,” Thayer said after voting for the bill.

The House also passed SB 2 by a wide margin ­– 70-28 – but the legislation sparked some debate with a number of lawmakers vehemently opposed to the hybrid plan.

Rep. Derrick Graham, D-Frankfort, said Tuesday marked one of his most difficult days as a legislator. SB 2 is a “patchwork” bill, he said, and future legislators will have to readdress the issue of fully paying pension contributions.

“I hope … that it works out in the way that we’re telling (Kentuckians) tonight, but I have some grave concerns,” Graham said during a speech on the House floor.

House Speaker Greg Stumbo, however, said the proposed plan would protect state workers and retirees currently vested in the defined benefit program by putting more cash in KRS.

The hybrid plan has a number of critics, but Stumbo, D-Prestonsburg, said lawmakers will be proud of their decision when reflecting on the difficult task of pension reform and finding money to pay for it, something other states have not done.

House Democrats had advocated for maintaining the defined benefit plan along with a number of other recommendations. Stumbo said “two and a half out of three” of the House’s proposals were included in the final version of SB 2.

“I’m proud of what I saw here tonight,” he told reporters during a news conference.

HB 440, the funding bill, calls for reducing a personal tax credit from $20 to $10, closing a number of tax loopholes and using federal tax changes to make actuarially required pension contributions expected to cost an extra $100 million in General Fund money in fiscal year 2015 alone.

In all, the funding proposal is expected to generate $95.7 million in fiscal year 2015 and $99.9 million in fiscal year 2016. The plan includes a trade-in credit for new car purchases, which would take an estimated $34 million annually from the Road Fund.

Some – including Jim Carroll, co-founder of the Facebook group Kentucky Government Retirees – questioned the Legislature’s decision to not specifically earmark revenue from HB 440 for KRS.

“For the sake of all taxpayers, it is critical that future legislatures honor this financial commitment so that such a fiscal crisis is not repeated,” Carroll said in a statement.

Senate President Robert Stivers, R-Manchester, said bond-rating agencies are more concerned with budget integrity as a whole rather than a dedicated revenue source. Funding streams can also be problematic when there are shortfalls and surpluses that require alternative plans, he said.

“We made sure people knew there was sufficient funding in the streams out there that could take care of the problem,” Stivers said.

Those representing public workers and retirees were unhappy with Tuesday’s result.

Steve Barger, coordinator of the Kentucky Public Pension Coalition, took issue with the process of crafting SB 2 because pensioners and public workers were not included in talks as lawmakers hashed out a compromise in the session’s final week.

“We hope that people were acting in good faith,” Barger said. “We think that they were. We just don’t think there was enough time and enough thought put into it, particularly when you leave out 340,000 retirees and public employees.”

Want to leave your comments?

Sign in or Register to comment.

  • 1713 saying something bad about his fellow Democrats? I'm surprised! Turns out when they hit him where it hurts he ain't liking it either. Just watch what they are doing to health care. You'll be hurling alright.

  • Good luck attracting quality employees. For every job position in State government, the equivalent private sector position pays more and has better benefits. I left the private sector for a State job after getting married and settling down. Even though it was lower paying, it was more stable and had good healthcare and retirement benefits. Since then, we’ve stopped getting raises, had furloughs, been threatened with layoffs, not been able to fill positions (which just puts more work on those of us that are left), having to pay higher for healthcare premiums every year (and higher deductibles and co-pays), and now retirement benefits are evaporating. I wouldn’t recommend a State job to anyone now, the way I would’ve ten years ago.

  • The best quotes are in the actual Governor's Office Press Release, and the self-aggrandizing makes me wanna hurl! ........................................................................................................................................................................................................................................................................................................................................................................................................................................................................... “This is a shining example of how government should tackle pressing problems facing the state,” said Senate President Robert Stivers. “Public pension reform was accomplished through a bipartisan, bicameral and collegial way.” ............................................................................................................................................................................................................................................................................................................................................................................................................................................................................ “Unlike Congress, we have shown that we can solve complex problems in a comprehensive and bipartisan way. Like any major piece of legislation, it is not without some controversy, but we have brought stability to our system and adequate funding that will ensure a safe and secure pension for those covered,” said Speaker Greg Stumbo. “With the help and steady hand of Governor Beshear, we have honored our commitment, we have accomplished our mission, we have solved a huge problem, and we have earned our pay. The taxpayers expect this, they deserve this, and we delivered.”....................................................................................................................................................................................................................................................................................................................................................................................................................................................................... “One of our most pressing duties this session was to find a fix to the unfunded pension system. It was not an easy task – especially in today’s economy – but we have found a solution that will make our retirement system solvent,” said Senate Minority Floor Leader R.J. Palmer. “This end result is especially gratifying because of the manner in which we arrived at our solution -- we worked together. Members of both parties in both chambers and Governor Beshear rolled up our sleeves to tackle this problem. The passage of this legislation shows that the system works. This is democracy at its best.” ....................................................................................................................................................................................................................................................................................................................................................................................................................................................................... Rep. Graham was about the only candid one out there, saying, “I hope … that it works out in the way that we’re telling (Kentuckians) tonight, but I have some grave concerns,” Graham said during a speech on the House floor. That is because Derrick cares about his constituents, who are for the most part state employees and retirees. The rest of these yahoos from out in the state could care less about state employees, or for that matter, state government and the critical services that it provides. Many hate government in classic Teabagger style, and want to see it destroyed. Derrick's are the only words that I trust about what it really going on.

  • RIP the pension system, the last hope of people who want to retire at some point before death. This assembly should be ashamed that they have, yet again, thrown state employees to the wolves. And no raises written into the law... ever? Who ever heard of that? I have worked in private industry for half my life, and even at bad companies, we knew there would be raises. This legislature does NOT respect their employees. It is time to vote them out.