Kentucky Gov. Matt Bevin signed pension legislation on Wednesday after lawmakers delivered the bill he wanted to relieve regional universities and community social services agencies from crushing retirement costs.
Pension issues have cast a long shadow over the Republican governor’s tenure in office, as he and lawmakers have struggled to shore up one of the country’s worst-funded public pension systems.
The GOP-dominated Senate voted 27-11 on Wednesday to end work on the bill, which replaces a similar measure that Bevin vetoed in April after lawmakers had ended their regular session.
The measure took effect after Bevin’s signature. Soon after that, the legislature ended the high-stakes special session that Bevin convened last Friday in the midst of his reelection campaign.
Bevin said the bill doesn’t resolve the state’s pension woes, but called it a “responsible and appropriate next step in moving toward financial solvency.”
“But there will have to be more steps,” he said. “We don’t even know fully what they will be. Some of them will be determined by the impact of the steps that have been taken thus far.”
The new law aims to bring relief to regional universities and quasi-governmental entities hit recently by massive increases in pension costs. The agencies provide crucial social safety-net services and include public health departments, community mental health centers and domestic violence shelters.
The measure reflecting Bevin’s plan would spare regional universities and quasi-public agencies from the spike in pension costs by freezing rates at the much lower amounts for another year. It allows affected agencies to decide next year whether to stay in the state retirement system and face a big increase in contribution rates or agree to leave.
State leaders warned that, without relief, some quasi-public agencies would be strained to the point of bankruptcy, causing people to lose their jobs or critical services.
Bevin’s proposal narrowly passed the GOP-led House but ran into less resistance in the Senate. The special session cost taxpayers about $66,000 per day.
Opponents of Bevin’s bill warned it’s likely to draw a court challenge. They said it violates “inviolable contract” language guaranteeing that affected employees get the benefits promised when they were hired.
“The only hope of a life when they’re old enough is their pension,” Senate Minority Floor Leader Morgan McGarvey, a Louisville Democrat, said during the Senate debate. “We’re going to cut that off today. We’re going to tell them … either find another job or come up with a measly 401(k) with the years you have left in your working life.”
Jim Carroll, president of Kentucky Government Retirees, said the measure “assaults the contract rights” of affected employees. The advocacy group represents 15,000 retirees and active employees.
“We will stand in solidarity with affected employees when guaranteed benefits are terminated next year and this matter is litigated,” Carroll said in a statement.
The bill’s supporters said it doesn’t violate employees’ rights, noting that affected groups can choose to stay in the state pension plan next year and start paying higher pension costs.
The governor said he’s not concerned about any potential legal challenge, saying “there’s no basis” for it.
Bevin has wrangled with the politically sensitive pension issue as he seeks reelection this year. His Democratic challenger, Attorney General Andy Beshear, has said the restrictiveness of Bevin’s proclamation calling lawmakers into session created “a clear danger” that any measure winning passage would be challenged in court.
The midsummer session had a starkly different outcome than another pension-related special session that Bevin convened last December, when lawmakers went home without taking action. This time, Bevin spent weeks building support for his pension proposal.
The new law will allow the agencies to stay with the Kentucky Retirement Systems at full cost, leave the retirement system by paying a lump sum equal to future projected benefits payments or buy their way out in installment payments over 30 years.
It gives groups until next April to decide whether to leave the state retirement system after the conclusion of next year’s legislative session. That will give lawmakers time to make any changes they think are needed.
House Democrats offered an alternative that stalled in committee. Their plan included a long-term freeze of retirement payments paid by the agencies along with redirecting tens of millions in retiree health insurance payments to pension liabilities for five years. The retiree health insurance fund would have been paid back over time through higher annual payments to it. Supporters said it wouldn’t affect retirees’ health care benefits or premiums.
On Wednesday, the Senate defeated Democratic-sponsored amendments aimed at reshaping the bill.
Bevin criticized the alternatives as “really bad ideas.”
The legislation that passed is House Bill 1.