In four days, the Kentucky House of Representatives and Senate filed, heard, debated and ultimately passed HB1. While this bill is supposed to solve the mess created by both chambers at the end of the regular legislative session, it violates the law and manages to exacerbate KRS’ funding issues.  

HB1 seeks to reward quasi-governmental agencies that decide to leave KRS by offering those agencies that sever from KRS a rate freeze, while those that remain in the system continue to face budgetary pressure. These quasi agencies are forced to choose between their operating budgets and providing retirement security to their employees. The employees whose agencies leave KRS lose access to a pension that ensures they can retire in dignity and are moved to a riskier 401(k)-style retirement plan. 

This portion of HB1 violates the inviolable contract the state has with these employees — making sure that they receive the benefits they were promised at the start of employment, including their pension. Violating the inviolable contract will surely end with HB1 in front of judges, costing the state hundreds of thousands of dollars.  

Additionally, HB1 perpetuates the same flawed logic lawmakers used to justify other failed KRS plan design changes. With HB1 driving agencies to 401(k) plans, fewer people contribute to KRS and the system’s unfunded liability will increase. This occurred when lawmakers moved all newly hired public employees participating in KRS to a cash balance retirement plan in 2013.  

The 2013 law created two problems. First, it meant public employees worked towards a diminished benefit, weakening their retirement security. Second, by diverting employee contributions from KRS, the unfunded liability grew. States such as West Virginia, Alaska and Michigan implemented similar policies, resulting in high turnover and rising pension debt. 

It is important to note the cause for KRS’ current funding. It is not the fault of the employees who dedicated their careers to public service. Rather, years of lawmakers making partial or zero payments into the Kentucky Retirement System (KRS) inflated the system’s unfunded liability. When the unfunded liability reached a critical point, lawmakers implemented benefit cuts to public employees who provide vital services throughout the state. 

Looking forward, Kentucky lawmakers cannot continue to diminish employees’ retirements due to the legislature’s failure to make adequate contributions. Nor can lawmakers allow the governor to continue to use special sessions to ram through legislation.

At the very least, the options presented should have been allowed to go before the full House for proper debate during the actual session. This crisis was manufactured to drive a special session and make harmful benefit cuts. A clean rate freeze should have been passed in the spring, allowing any further discussion on policy changes to take place in an open and democratic format. 

Bridget Early is executive director of the National Public Pension Coalition, which is based in Washington, D.C. 

Recommended for you

Load comments

Thank you for Reading!

Please purchase an Enhanced Subscription to continue reading.Please log in, or sign up for a new account and purchase an Enhanced Subscription to continue reading.