A nonprofit publication of the Kentucky Center for Public Service Journalism

Governor vetoes public pension pension bill, plans to call for special session to address the issue

By Tom Latek
Kentucky Today

Gov. Matt Bevin on Tuesday vetoed a public pension bill approved on the final day of the 2019 General Assembly and vowed to call a special session to address the issue.

During the 11 p.m. hour on the last day of the session, lawmakers passed public pension legislation that would have affected the regional public universities, as well as quasi-governmental agencies, such as health departments, who are in the Kentucky Employees Retirement System.

House Bill 358 was changed by the Senate and the House would not agree to the Senate version, so a free conference committee met to hammer out an agreement, which was finally reached during the evening. That led to both chambers agreeing to the free conference committee report, 26-11 in the Senate and 59-35 in the House.

Bevin’s veto will give lawmakers another chance to revamp the public pension system during a special session that the governor said would come before July 1.

Gov. Matt Bevin has vetoed the public pension reform bill that passed in the last hour of the 2019 General Assembly. (Photo by Mark Maynard, Kentucky Today)

“Throughout the process of creating public awareness of the dire conditions of our public employee retirement systems, I have stated repeatedly that we have a moral and legal obligation to protect the benefits earned by our public sector retirees,” Bevin wrote in his veto message. “While I appreciate the work of our legislators who worked diligently to protect the services provided by many quasi-governmental agencies, parts of HB 358 violate both the moral and legal obligations we have to these very retirees.”

House Speaker David Osborne, R-Prospect, issued a statement on Bevin’s veto, calling on the governor to begin working with lawmakers soon.

“Before passing HB 358, we spent exhaustive amounts of time meeting with the stakeholders, the universities and the quasis, as well as the representative employees of both,” he said. “We sent the governor a bill that we believed provided stability for the employers while keeping the state’s commitment to the retirement futures of our employees. I am hopeful that the governor will begin meeting with us immediately to find a solution that ensures this balance. It is critical that we do this before calling another special session without a solution in hand.”

The vetoed bill said on June 30, 2020, the quasi-governmental agencies and universities would cease participating in the KERS, unless the board of each entity votes by the end of this year to stay in the system.

If they remain, their payments are frozen for one year, but they will have to pay the full retirement contribution rate starting July 1, 2020.

The entities opting out of the system would have Tier III employees and all new hires transfer become part of a defined contribution plan, like a 401 (k). Tier I and II employees will have the choice to continue accruing benefits under the current system or opt out for a defined contribution plan as well.

Those entities who opt out would be responsible for their unfunded liability portion, which they could pay off in a lump sum or in monthly installments until the unfunded liability is paid off.

If the agency was more than 30 days lake in making a monthly payment, they would be taken over by the state Finance and Administration Cabinet, and benefits to retirees and their beneficiaries would stop until the agency became current in their payments.

Bevin also cited the section of the bill that would halt benefits to retirees if an agency is more than 30 days past due on an installment payment.

“Under current law, this would include the health care benefits provided to these individuals,” Bevin wrote. “This is not acceptable.”

Bevin said he strongly believes in protecting the quasi-governmental agencies from potential insolvency due to looming higher employer contributions to the pension systems.

“These entities provide critical services throughout the commonwealth. It is paramount that their services remain uninterrupted. By having ignored the true costs of pension obligations for so many years, the risk to service interruptions is now very real.”

Bevin said the special session would come before the start of the state’s new fiscal year “to provide the relief necessary to protect the solvency of these entities, and their ability to provide services, while at the same time maximizing funding to the Kentucky Employees Retirement Systems and protecting the inviolable contract rights of retirees.”

Jim Carroll, president of Kentucky Government Retirees, issued a statement supporting the governor’s veto of a bill he says “attacked employee contract rights, exposed Kentucky Retirement Systems to unjustified risk and incurred substantial actuarial costs.

“The governor’s veto provides an opportunity for a genuine collaboration among representatives of all stakeholders,” Carroll said. “The path forward must include a funding solution that provides relief to quasi-governmental agencies while not fiscally damaging the nation’s most vulnerable state pension plan.”

The unfunded liability of all the public pension systems in Kentucky, which have nearly 380,000 members, both employees and retirees, is estimated to be at least $43 billion.

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