FRANKFORT – For most of the year, Governor Matt Bevin has promised he would call a special legislative session to focus on making major changes to the retirement systems of our school employees and those who work for state and local governments. We still have no specific date, but he and Republican leaders of the General Assembly did offer a framework last week of what they would like to see become law.
That framework may have given us a clearer picture, but it lacks critical details. For one, we still did not have a bill as of Monday morning. For those who have ever bought a car, house or business, you know the fine print can have a lot of unexpected surprises.
The cost of the plan – to the employers, the employees and the retirees – is another unknown. There are nearly 500,000 people who have paid into or are drawing from a public retirement account, so it is difficult to overstate the importance of having as much financial information as possible.
House Speaker Jeff Hoover has promised a month to study this issue before a special session would begin. Although he does not have the authority to call a special session – only the governor does – he is right that we need at least this length of time to debate what could be one of the most significant laws the General Assembly has ever passed.
Given the lateness of the year, we should also ask whether this could wait until January, when legislators are already scheduled to return to the Capitol. Since the framework does not call for any changes to take effect before next July, this is increasingly sounding like a sensible approach, and one that would save taxpayers more than $300,000.
As for the framework itself, I have some serious concerns about several of its recommendations. For one, it would call on current retired teachers to forgo a scheduled 1.5 percent annual raise for the next five years. Retired teachers in the future would have the same pause in cost-of-living allowances.
It is critical to note that teachers do not pay into or receive Social Security, and they pre-pay for these scheduled raises during their career. For many, their retirement check is all they get, so a cumulative cut of more than seven percent would potentially cost teachers tens of thousands of dollars over their retirements.
All public employees would also be required to give up three percent of their salaries to cover future retirement healthcare costs. This pay cut would come at a time when most employees have seen little to no raises over the last several years.
The framework would require new teachers and government workers to be enrolled into 401(k)-styled plans – except most hazardous-duty employees, who would largely be unaffected by a lot of these proposals.
All state and local government employees hired since 2014 have already been enrolled in something similar that does away with consistent monthly benefits when they retire, and the way this is structured, there is little to no chance they will contribute to unfunded liabilities down the road.
Many public employee and retiree groups have expressed similar concerns about these items and others in the framework. One Kentucky Supreme Court justice has said he doubts whether the state can cap retirement benefits at 27 years of service and move benefits earned beyond that into a 401(k). It is likely that many of the framework’s other provisions, if they become law, will be tested in the courts as well.
Another concern I have about the framework is its call to pay down the liability in roughly equal installments over the next 30 years. While that may seem sensible on the surface, it would cause a much larger burden on the next few budget cycles and relatively smaller ones two decades or more down the road. With some state agencies seeing their budgets cut by a third or more since the start of the Great Recession – and with economists saying the state is facing a $150 million shortfall this fiscal year alone – finding hundreds of millions dollars more for what is called level-dollar funding could be especially tough.
While there will be a lot of debate over these and related issues in the weeks and months ahead, I am committed to finding solutions that tackle the liability in a way that is fair to all involved, that is legally sound and that does not harm our ability to continue hiring the type of qualified workforce we have depended on for decades.
I will continue updating you on the progress of this work as the process moves forward. For now, I want to thank those who have reached out to me with their questions and comments. I strongly encourage you to join them, if you’d like to let me know your views as well.
To reach me, my address is Room 432F, Capitol Annex, 702 Capitol Avenue, Frankfort KY 40601; or you can email me at Rick.Rand@lrc.ky.gov.
To leave a message for me or for any legislator, call toll-free at 800-372-7181. For those with a hearing impairment, the number is 800-896-0305.
I hope to hear from you soon.