The Week in Public Finance: In Kentucky, Pension Reform Fails (Again)

Despite going into special session, lawmakers still don't have a solution for the least-funded pension system in the nation.
by | December 21, 2018 AT 7:00 AM
Kentucky House Speaker David Osborne, right, said they could not solve the state's pension troubles "within the confines of a five-day session." (AP/Timothy D. Easley)

SPEED READ:

  • Late last week, the Kentucky Supreme Court struck down pension reform passed earlier this year.
  • Kentucky lawmakers adjourned a special session called by Gov. Matt Bevin Tuesday night without addressing the court's ruling.
  • The state employees plan is less than 17 percent funded -- the worst in the nation. Lawmakers have been trying to fix the state's pension system for nearly 15 years.
 

It's been a whirlwind five days for pension reform in Kentucky.

It all started late last week when the state Supreme Court struck down pension legislation passed earlier this year. Gov. Matt Bevin called a special session on Monday to address the ruling. But a mere 24 hours later, lawmakers had adjourned with no solution.

“We cannot shirk this, we cannot run from this,” House of Representatives Speaker Pro-Tempore David Osborne said in a floor speech Tuesday night. “But this was not a problem that was created overnight. We cannot solve it within the confines of a five-day session.”

The Kentucky Supreme Court's decision last week ruled that legislation passed in March was not given the constitutionally required number of public readings. The ruling is just the latest in the state's ongoing pension troubles.

Lawmakers have been trying for nearly 15 years to fix the penion system, but to no avail. The state employees plan is less than 17 percent funded -- the worst in the nation. Its unfunded liability has increased by an average of a billion dollars a year for the last three years to total $13.5 billion.

All this after years of trying to rein in costs. In 2004, the legislature cut retirees' health benefits. In 2008, they eliminated pension spiking, which offered higher benefits for workers whose earnings increased at the tail end of their career. In 2013, they passed legislation that forced the state to make its full pension payments and moved new state employees into a cash-balance pension plan, which is less risky for the government. Retiree cost-of-living adjustments were also effectively eliminated.

That 2013 reform was applauded as a success. But since then, the pension's funded ratio has decreased by one-third.

So in March, lawmakers tried yet again to fix the system. In the waning days of the session, they hastily passed pension reform targeting not just the ailing state employees plan. It also made dramatic alterations to the state teachers pensions, too. (The state teachers plan, while not the model of fiscal health, is in better shape with 55 percent of the funds it needs to meet its liabilities.)

In response to the court's decision to strike down that reform, Bevin on Monday called a special session, giving lawmakers four hours to show up in Frankfort. With the legislature losing some Republican lawmakers, Bevin recognized that this could be his last chance to push through drastic pension changes.

Bevin, who has pushed to switch the state’s largest pension plans to a 401(k) system since he took office in 2016, submitted two bills to lawmakers -- both slimmed-down versions of the legislation they had already passed in March. But with so little time to review either bill or to agree on their own version, Republicans in the state House adjourned the special session Tuesday night.

To Jim Carroll, co-founder of the advocacy group Kentucky Government Retirees, the whole exercise may have weakened Bevin going into the 2019 session. “Why go to the trouble of surprising everybody and spending $60,000 in taxpayer dollars a day for a special session, when you’re not certain of the outcome?”

But Carroll adds that he’s encouraged by the fact that the Republican governor has made pension funding a priority. Under Bevin, the state last year made its full payment not only to the employees’ plan but also to the teacher pension plan.

Carroll hopes that when the legislature reconvenes for a new session in 2019 that it will focus on mandating good funding policies rather than drastic changes that eliminate benefits for future employees. “We’ve done what we need to do as far as we’re concerned,” he says. “Lawmakers just need to fund it.”

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*CORRECTION: A previous version of this had Frankfort misspelled.