Kentucky Attorney General Andy Beshear is asking a state circuit court judge to block a new law that would fund state employees’ pension accounts through a combination of employee contributions and funds directly from state and local taxpayers.
Gov. Matt Bevin signed Senate Bill 151 (S.B. 151) into law on April 10. The law will place new government teachers in a hybrid cash-balance retirement plan which includes features of both a defined-benefit pension plan and a defined-contribution plan similar to 401(k) plans enjoyed by many individuals in the private sector, beginning on July 14.
Beshear is asking Franklin Circuit Court Judge Phillip Shepherd to invalidate the law, claiming the legislative process violated state constitutional provisions regulating how long a bill must be debated before approval.
Response to Fiscal Concerns
State Sen. Joe Bowen (R-Owensboro), S.B. 151’s sponsor, says the law uses tried-and-true reforms to help put the state’s finances back on track.
“We were looking at a $43 billion—minimum—pension liability in the state of Kentucky and could no longer afford to kick the can down the road,” Bowen said. “History tells us that the structure of the defined-benefit plan is fragile. Private enterprise realized this years ago.”
Jordan Harris, founder and co-executive director of the Pegasus Institute, says pension debt is consuming taxpayer resources needed for core government functions.
“There’s been a massive crowding out of basic services and programs, and this was the first session in which legislators really had to deal with that massive crowding-out effect,” Harris said. “Kentucky has an annual budget of $11 billion, which isn’t a ton of money, when you talk about state government. We are a relatively poor state that has a pretty small overall annual budget, and a gigantic chunk of that is being dedicated to pension liability.”
‘We Had to Act’
Bowen says delaying action on pension reform was no longer an option.
“In order to address this huge pension liability, arguably the greatest fiscal challenge the state of Kentucky has ever faced, we had to act,” Bowen said. “Part of what we had to do was change the pension structure. It was tough and necessary to change the structure of the systems in order to stop the digging and get us on the path of solvency.”
The status quo was unsustainable because the state’s budget was in crisis, Harris says.
“We saw a lot of things cut and a lot of programs that were not funded during this legislative session, which was a budget session, because of this,” Harris said. “That’s one of the things that made this legislative session so challenging and reform so necessary.”
‘A Much Better Deal’
Bowen says the new pension system will be better for government employees.
“New teachers will be going into a hybrid cash-balance plan,” Bowen said. “The beauty of this plan is that there will never be a year that their funds lose money. There have been calculations, even by some of the groups in the education community, that said this plan will provide for a better pension benefit after a 30-year career than the current defined-benefit plan would,” Bowen said. “It’s a much better deal than anyone gets in the private sector.”
