For months now, public employees and retirees in Kentucky have awaited the introduction of a pension bill. Republican legislators have been promising that the introduction of a pension bill is just days away, but they never ended up releasing anything- until now. Last week, State Senator Bowen introduced Senate Bill 1, which makes substantial changes to public pension plans in Kentucky. That bill had a hearing today in the State and Local Government Committee. Unfortunately, SB1 would gut retirement security for public employees and retirees.
The process of crafting this pension bill in Kentucky has been shrouded in secrecy. SB1 was written without consultation or input from public employees and retirees. Republican legislators have so far resisted calls to release an analysis of the bill, making it difficult to determine the true costs and effects of the legislation. This follows a pattern in Kentucky. When Governor Bevin proposed his harsh pension cutting bill in October, he suppressed the release of one analysis of the bill after a separate analysis found it would increase costs to taxpayers by $4 billion.
The most dramatic change proposed in SB1 is switching future teachers from a defined benefit pension to a cash balance hybrid plan. This plan would be similar to the one many other public employees in Kentucky were forced into by legislation passed in 2013 (legislation actively promoted by the Pew Research Center, by the way). This switch would represent a substantial loss of retirement security for Kentucky’s teachers. Cash balance hybrid plans do not guarantee a certain benefit amount in retirement, unlike pension plans. Also, Kentucky’s teachers do not participate in Social Security, so they would have no source of guaranteed income in retirement.
SB1 contains other harmful provisions as well. It would cut Cost of Living Adjustments (COLAs) in half for twelve years. One estimate projects this would result in a loss of $73,000 in lifetime income for retirees. Another provision would result in benefit cuts for current employees by changing the way investment returns are distributed in the cash balance hybrid plan. Current retired teachers would also be forced to pay more for their healthcare, cutting into a fixed income for many.
Senate Bill 1 could have been worse. It does not force public employees into risky and unreliable 401(k)-style defined contribution plans. It does not include some of the more extreme provisions that Governor Bevin proposed in his legislation. Despite these differences, SB1 still threatens the retirement security of current and future public employees and retirees in Kentucky. Legislators in the commonwealth should oppose these unnecessary and harmful changes and, instead, commit to fully funding Kentucky’s public pensions.