Legislative Update Mar 30, 2019
When the General Assembly returned to the Capitol on Thursday to complete this year’s legislative session, one unresolved issue towered over the rest. Regrettably, the solution now set to become law is not the one we need, and the very way it was approved – late at night, before the bill could even be read – was a near-repeat of last year’s controversial and ultimately unconstitutional public-pension bill.
That 2018 legislation, as you may recall, was mainly about retirement benefits for teachers, while this year’s deals with an extreme jump in retirement payments for our regional public universities and quasi-government agencies like health departments and rape-crisis centers. If nothing is done, these payments would set them back more than $100 million annually, causing steep cuts in services and likely forcing some to close.
The legislature gave these universities and agencies a 12-month reprieve last year, and in the House, at least, there was broad, bipartisan support to extend that freeze for another 12 months. That would give the legislature’s new public-pension working group time to come up a permanent solution that could then be addressed as part of the next two-year budget.
The Senate, however, did not want to go that route, leaving us in search of another way, which is what passed in the session’s final hours on Thursday. Governor Bevin now has 10 days to decide whether to veto or sign it into law.
Many may wonder why these retirement payments were scheduled to go up so much so fast. A significant reason can be traced back to the summer of 2017, when Governor Bevin’s new appointees on the Kentucky Retirement Systems board immediately dropped annual investment growth assumptions to the most conservative rates in the nation.
These investments make up a substantial part of each retirement check, so that single vote meant that the long-term liabilities went up by billions of dollars overnight. That, on top of the board’s additional changes in payroll growth and inflation rate, meant every agency contributing to these systems saw their annual payments go up significantly, too. The state is able to absorb these costs, but many of our quasi-government agencies are not.
What the legislature passed on Thursday grants that second-year freeze everyone wants, but at a too-steep cost that puts more pressure on state finances, harms the most underfunded public retirement system in the country and makes it possible for hundreds if not thousands of public employees/retirees to lose benefits they’ve earned and are counting on.
It is a complicated matter, but this bill takes the affected universities and agencies out of the state retirement system – unless they decide by the end of December to opt back in. If they choose to remain, they will have to find a way to pay a 70 percent increase in their annual retirement payments.
If they stay out, however, they will have to pay off their portion of the retirement system’s liabilities, but at a rate low enough that it would take decades, maybe a half-century or more, to get there. Imagine buying a house with a 30-year mortgage and finding out that, at the end, you owe more than you did when you bought it. That’s what this bill does.
For the universities and agencies leaving the state retirement system, new employees and those hired since the start of 2014 will be placed in a defined-contribution retirement plan like a 401(k). Career employees hired before then would have the option of staying enrolled in the state retirement system, but if their school or agency defaults on just one monthly payment, they will immediately and permanently be placed in the 401(k)-like retirement plan with the others. Those already retired from these agencies would also see their benefits stopped as well, until the matter is resolved and monthly payments resume.
It is important to emphasize that this bill only affects those paying into what is called the Kentucky Employee Retirement System. This bill has no impact on teachers, local government employees and those who work in hazardous-duty jobs like police officers and firefighters. Employees at the University of Kentucky and University of Louisville have different retirement plans and are unaffected, as well.
Although this bill was the most controversial issue the House and Senate considered on Thursday, some other worthwhile bills did pass that day. One will have businesses make reasonable accommodations for its pregnant employees, while the other will make our elementary and secondary schools tobacco-free unless they decide to opt out. Most schools have already adopted this policy, but this will ensure it applies more uniformly.
Overall, this was a consequential legislative session, and I want thank everyone who let me know their thoughts and concerns. It made a difference. Looking ahead, I encourage you to keep reaching out if there is an issue you think needs to be addressed.
My email is email@example.com, and you can call the toll-free message line at 1-800-372-7181 each weekday. If you have a hearing impairment, the number is 1-800-896-0305.
The General Assembly’s website, meanwhile, is at www.legislature.ky.gov.
Thanks a lot and holler anytime.