Critics say it could weaken the state’s retirement system, which is already the worst-funded in the nation.
After several failed attempts and a special legislative session, Kentucky — the state with the worst-funded pension system — now has a plan to ease the financial burden that employees’ retirements are taking on quasi-governmental agencies.
In signing the pension reform bill on Wednesday, Republican Gov. Matt Bevin said it provides “much needed financial relief” and “a viable path forward for our mental health agencies, rape crisis centers, local health departments and other community agencies.”
But opponents of the new law warn that the controversial changes could worsen the state pension plan’s already precarious finances.
The bill freezes the pension payments for quasi-governmental institutions for another year, essentially allowing them to pay half of their bill until it significantly increases after 2020. And in an unprecedented move, the law allows those agencies to leave the state’s pension system and pay off their debt, with interest, over the next 30 years; those agencies can also now move employees hired after 2013 out of the state retirement system.
Pension advocates say the new law threatens the solvency of the $2.7 billion Kentucky Retirement System and will likely leave it waiting decades to get the money it’s owed. The state employees’ plan is already one of the worst-funded in the nation, with just 16 percent of the assets it needs to meet its expected liabilities.
Bridget Early, executive director of the National Public Pension Coalition, says the legislation builds on years of state changes that have weakened the system.
“Instead of finding a way to get money into the system, they’ve all focused on benefit cuts,” she says. “That ultimately removed needed contributions.”
The bill was pushed for by presidents of the state’s regional universities, who say that increasing pension costs are squeezing their budgets and forcing them to raise tuition.
A similar bill passed the legislature during the regular session, but it contained extreme conditions that could have led to retirees not getting pension checks. Bevin vetoed it and called a special session to address the issue.
The state’s 118 quasi-governmental agencies can start leaving the Kentucky Retirement System in April. If they do, they have to provide other options for their employees, such as a 401(k) — but they don’t have to continue contributing money toward their retirement.
Most observers expect the law to be challenged in court, most likely by state Attorney General Andy Beshear, a Democrat and frequent Bevin critic who is running against him for governor.
In the meantime, there are eight months, a governor’s election and the better part of a legislative session until agencies are eligible to exit the retirement system. A lot could change.
“They didn’t do anything draconian that starts right now,” says Brian O’Neill, a spokesman for the Kentucky Public Pension Coalition. “There are still opportunities to work on this.”