FRANKFORT – Of all the facts and figures surrounding the public-pension debate, two speak volumes about what happened last Thursday at the Capitol: nine and 291.
The first is about how many hours it took for House and Senate leaders to publicly unveil their plan to reform the state’s public retirement systems and then steamroll it through both chambers. The second, meanwhile, is the number of pages other legislators and I were somehow expected to read and understand before voting in that short timeframe.
That is not how a major new law should be enacted. It deserves public input and scrutiny, and yet this received none of that, other than loud opposition from many of my colleagues and me and the growing roar we could hear during the night from angry teachers on the Capitol’s first and second floors.
There also was not any supporting documentation showing what the bill would cost, something state law understandably requires when it comes to making changes that are often measured in billions of dollars. The bill’s supporters could only give us vague answers to our questions.
In a telling twist, the legislation was not introduced as a stand-alone bill – the deadline to do that was more than a month ago – but was instead inserted into another that dealt with, of all things, sewage. It’s a fitting metaphor.
The bill’s supporters argue that nothing in the legislation is new, that its elements had been in prior proposals and widely debated. Something this complicated, however, has many moving parts, and how they interact depends on what is and is not included.
The supporters also say these reforms are necessary because that is the only way they would grant relief to our schools and local governments, which are on track to pay 50 percent or more for their retirement costs next fiscal year because of much more conservative investment projections by Kentucky Retirement Systems. That linkage is incorrect, because we can phase those payments in over the next five years without changing the systems themselves.
There is not enough space to list every concern I have about this bill, but the biggest is that it undermines the bipartisan retirement reforms the General Assembly approved in 2013 and that are working as intended to bring the retirement systems’ liabilities down over a 30-year period.
Ironically, those who say this bill stops “kicking the can down the road” just added more miles of highway. Since it re-sets the time to pay off those liabilities, taxpayers will have to pay billions of dollars more in the years ahead, and the retirement system for state employees, which is facing the biggest challenge, will have much lower funding levels in 2038 than if we just maintained our current course. That’s right: We are about to pay much more to get much less.
As for specifics in the bill, most of the impact will be felt by teachers hired in 2019 and beyond and those state and local government and classified school employees (such as secretaries and school bus drivers) hired since the start of 2014.
They will pay into what is called a hybrid cash-balance plan that operates like a 401(k) but is managed by the retirement systems. They are not guaranteed any growth beyond employer/employee contributions, but are eligible to receive most of the investment gains earned by the retirement systems.
This new law ends the inviolable contact for new teachers, which means that, for those affected, their benefit structure can be changed at any time by the General Assembly. Indeed, that is exactly what is happening to the state and local government and classified school employees hired since 2014. That group of workers will also no longer receive $5,000 in death benefits in retirement, another unnecessary change that costs more in morale than it saves financially.
This legislation does not take away any of the 1.5 percent cost-of-living allowance that retired teachers receive each year. There had been serious discussion about removing or reducing those COLAs, which mimic raises received by those on Social Security, something teachers do not pay into. It’s hard to call this good news, since the teachers pre-paid those COLAs while working and never should have been threatened with losing them, but this at least gives these retirees more certainty.
On the other hand, schools will now face additional costs, because they will have to contribute two percent of pay toward the retirements of teachers hired in 2019 and beyond. This comes at a time when the schools are already having difficulty meeting basic needs.
Many current teachers and state and local government employees will also see some changes to their retirement benefits, since this legislation sets future limits on the use of sick and comp time when calculating their retirements. State and local government employees hired between 2003 and 2008 will also have to pay more for their retiree healthcare costs, even though some of those insurance plans are already well-funded.
Overall, this new law will make it tougher to attract and keep new teachers and public workers; it costs far more than it saves; and it is legally suspect, which is why the Attorney General and others have said they will sue to have it overturned.
I want to add that what happened on Thursday is likely to happen again on Monday this week, the only day the General Assembly is in session before a 10-day veto recess. The same House and Senate leaders who rushed a pension bill to the governor’s desk are on track to do the same with a $22 billion budget and potentially major tax changes. Even if you might support provisions in these bills, this Washington-style approach is not how laws should be enacted here in Kentucky.
I will cover those topics more next week. For now, please continue letting me know your views by emailing me at Rick.Rand@lrc.ky.gov or by calling the toll-free message line at 800-372-7181. Those with a hearing impairment can call 800-896-0305