Today’s blog post was written by Bridget Early, Executive Director at NPPC.
Kentucky Governor Matt Bevin has called a special session that began yesterday. The special session is being used to pass his proposed pension bill, HB1. House and Senate leadership say they have the votes to pass the legislation, but ultimately, it’s not over until it’s over.
So what’s in this legislation? Essentially, Kentucky lawmakers could end state pensions for thousands of public employees who are employed by quasi-state agencies, such as rape crisis centers. This is happening for two reasons. The first is gross pension fund mismanagement by lawmakers, who for years underfunded or skipped pension payments. The second is that the pension fund in question, Kentucky Retirement Systems (KRS), has one of the lowest assumed rates of return in the country at 5.25%, driving up the unfunded liability of the system. Without the passage of any legislation, these quasi-state agencies will see their annual pension contributions double due to KRS’ funding status.
Here are the mistakes Kentucky lawmakers are making by passing Governor Bevin’s proposed legislation:
- The legislation is illegal. Besides being horribly written legislation, Bevin’s proposed bill violates the inviolable contract the state has with public employees. The legislation moves all quasi-state employees hired since 2014 into a defined contribution plan – violating the contract they have with the state.
- The legislation will be held up in court over process. Lawmakers are claiming that they only need 51 votes in the House and 20 votes in the Senate – a simple majority that is needed for non-appropriation legislation. If the bill passes, it will surely be challenged over being an appropriations bill which would require 60 votes in the House and 23 in the Senate.
- Public employee retirement security will be harmed. Public employees dedicate their lives to public service. In doing so, they make less than they would in the private sector. A pension makes up for that – a defined benefit that public employees will have in retirement. Any time you take away that benefit and move employees to a defined contribution-style plan, you’re undermining their retirement security.
- The legislation will only harm the unfunded liability. It’s simple math: with fewer people paying into KRS, less money will be going into the system and the unfunded liability will rise.
- Recruitment and retention will be harmed. Time and time again, we’ve seen recruitment and retention drop whenever municipalities and even states move public employees from a pension plan to a defined contribution plan. Kentucky lawmakers have a choice to make.
Kentucky lawmakers can do better than this. They should simply freeze quasi-state agencies pension contribution for a year, then address pensions next legislative session.