Kentucky's Pension Plan: Law Or Lost Cause?

On April 10, 2018, Kentucky Governor Matt Bevin signed a controversial pension bill into law. The bill, which aimed to address the state's ailing public pension systems, was met with opposition from teachers and public employees who argued that it violated their contractual rights and would result in cuts to their benefits. Despite the criticism, Bevin maintained that the bill was necessary to prevent the pension system from collapsing and claimed that it did not break the state's promise to its workers. In the years since, Bevin has continued to grapple with pension issues, signing additional legislation in an effort to provide relief to regional universities and community social services agencies struggling with retirement costs. However, these efforts have also faced legal challenges and criticism from Democrats.

Kentucky Gov. Matt Bevin signs controversial pension bill into law

On Tuesday, April 10, 2018, Kentucky Gov. Matt Bevin signed into law a controversial bill that made changes to the state's ailing public pension systems. The bill, known as Senate Bill 151 (SB 151), was approved by lawmakers on March 29 and aimed to address Kentucky's pension problems, which included a more than $40 billion unfunded liability.

Despite signing the bill, Gov. Bevin acknowledged that it did not fully solve the state's pension issues, stating, "We have not fixed the pension problem... We have not. Do not let anyone delude you into thinking that we have now solved the pension problem. We have not." He criticized the legislature's solution while also commending the lawmakers who voted for it, arguing that it would prevent the pension problem from worsening.

The bill faced significant opposition from groups such as the Kentucky Education Association and the pension advocacy group Kentucky Government Retirees, who believed it violated the state's non-voidable contract with public employees. They pledged to challenge the bill in the Franklin Circuit Court. The opponents argued that the bill included deep cuts in benefits for retired, existing, and future public employees, with Senate Minority Floor Leader Morgan McGarvey claiming that it would "cut off" employees' only hope of a pension in their old age.

The bill made specific changes to the pension system for teachers. Teachers hired after January 1, 2019, would be placed in a hybrid cash-balance plan rather than a traditional pension and would be required to work longer before becoming eligible for retirement. This provision sparked protests from teachers across the state, with many school districts shutting down on March 30 due to "sick-outs," and thousands of teachers storming the Capitol on April 2.

Despite the controversy and opposition, Gov. Bevin defended his decision to sign the bill, arguing that it was a responsible step towards financial solvency for the state. He also stated that he was not concerned about potential legal challenges, claiming that there was "no basis" for them.

The bill relieves regional universities and community services from high retirement costs

In 2018, Kentucky Governor Matt Bevin signed a controversial pension bill into law. The bill aimed to relieve regional universities and community social services agencies from high retirement costs.

Pension issues had cast a long shadow over Bevin's tenure in office, as he and lawmakers struggled to shore up one of the country's worst-funded public pension systems. The new law aimed to bring relief to regional universities and quasi-governmental entities hit by massive increases in pension costs. These agencies, including public health departments, community mental health centres, and domestic violence shelters, provide crucial safety-net services to the community.

The measure spares regional universities and quasi-public agencies from the spike in pension costs by freezing rates at much lower amounts for another year. It allows affected agencies to decide the following year whether to stay in the state retirement system and face a significant increase in contribution rates or to agree to leave. State leaders warned that without relief, some quasi-public agencies would be strained to the point of bankruptcy.

The bill was not without its opponents, who argued that it would take away benefits from employees at dozens of agencies. They also believed that the bill violated the "inviolable contract" language, guaranteeing that affected employees receive the benefits promised when they were hired. Despite these concerns, Bevin maintained that the bill did not break the state's promise to its workers and that there was no basis for any potential legal challenge.

While the bill was a step towards addressing Kentucky's ailing public pension system, Bevin acknowledged that more needed to be done to resolve the state's pension woes.

The bill's opponents say it violates the inviolable contract language

The bill's opponents, including Attorney General Andy Beshear and the Kentucky Education Association, argue that it violates the "inviolable contract" language, which guarantees that employees receive the benefits promised to them when they were hired. They believe that the law breaches the state's non-voidable contract with public employees.

Jim Carroll, president of the pension advocacy group Kentucky Government Retirees, asserted that the measure assaults the contract rights of the affected employees. He also criticised the bill for reducing guaranteed pension benefits without producing significant savings.

Senate Minority Floor Leader Morgan McGarvey, a Louisville Democrat, expressed concern that the bill would cut off employees' pensions, leaving them with the choice of finding another job or relying on a "measly 401(k)" later in their working lives.

Additionally, House Minority Leader Rocky Adkins stated that the bill negatively impacts the retirement systems for teachers and public employees and is certain to be thrown out in court. He also highlighted the financial burden the law will place on taxpayers, costing them billions of dollars more over the next 30 years.

In response to these criticisms, supporters of the bill argue that it does not violate employees' rights, as affected groups can choose to stay in the state pension plan and start paying higher pension costs. Governor Bevin has also stated that he is not concerned about any potential legal challenge, claiming that "there's no basis" for it.

Bevin's proposal phases out the state's pension system

In 2017, Kentucky Governor Matt Bevin released a proposal to address the state's ailing public pension systems, which were facing critical financial problems. The plan aimed to phase out the state's pension system that guarantees benefits to retirees for life, instead of enrolling most future state workers, including teachers, in 401(k)-style plans. This shift would mean that retirement payments would depend on the contributions made by both the state and the individual throughout their working years.

Bevin's proposal, crafted with Republican leaders, aimed to address the state's pension woes, which included an over $40 billion unfunded liability. The plan was designed to transition thousands of current state workers hired in 2014 or later into the 401(k)-style plans and enrol most future state workers in similar plans. This marked a significant change from the traditional "defined-benefit" plan, where the state promised monthly payments to retirees for life.

The proposal included detailed summaries of the changes for each pension plan, affecting teachers, state employees, county and local workers, state police, judges, and legislators. For example, new hires would contribute 9% of their salaries to the plan, with options to contribute an additional 3%. The state and local school districts would also contribute to these plans.

Current teachers would retain their conventional pensions but once they reached 27 years of service, their benefits would be capped, and they would transition into the 401(a) plans. Additionally, all state employees would be required to contribute 3% of their salaries towards a retirement health program.

Bevin's proposal faced opposition from various groups, including teachers and retirees, who argued that it would cut benefits and impact retirement plans. There were concerns about the loss of cost-of-living adjustments and the potential violation of the "inviolable contract", which guarantees benefits promised to workers when hired. However, Bevin asserted that his plan did not break the state's promise to its workers and that it was a necessary step towards financial solvency.

Despite the controversy, Bevin signed the pension bill into law in April 2018, with the legislation taking effect immediately. The law preserved most benefits for current and retired teachers but moved new hires into a hybrid plan with less risk for the state.

The bill's supporters say it appeals to younger workers

Governor Matt Bevin's pension reform plan, signed into law in Kentucky in 2018, has been a subject of controversy, with opponents arguing that it cuts benefits and negatively impacts retirement for teachers and other public employees. However, supporters of the bill have a different perspective, especially when it comes to younger workers.

The bill includes a provision to move new hires into a hybrid plan, such as a 401(k)-style plan or a "cash-balance" plan, which puts less financial risk on the state. This approach is designed to prevent the state pension system from going bankrupt and ensure its long-term sustainability.

According to Governor Bevin, the changes introduced by the bill will appeal to younger workers who value flexibility and portability in their retirement plans. He suggests that younger workers may not favour the idea of being locked into a single job for a long period, such as the traditional 27 years required for a conventional pension plan. By offering alternative retirement plans, the bill provides younger workers with more choices and the ability to manage their investment funds individually.

Supporters of the bill argue that it empowers individuals to take control of their retirement savings and adapt their plans to their specific needs and circumstances. This approach aligns with the preferences of a modern workforce that seeks flexibility and customisation in their benefits packages.

Additionally, the bill's supporters refute the claim that it violates the "inviolable contract" or guarantee of benefits for employees. They emphasise that affected groups have the choice to stay in the state pension plan and that the bill does not force anyone into a particular retirement plan. This aspect of the bill further contributes to its appeal to younger workers who desire customisation and control over their retirement options.

While the bill has faced strong opposition, supporters believe that it offers a necessary step towards financial solvency for the state and provides a more sustainable foundation for the pension system. They argue that it strikes a balance between the needs of retirees and the state's ability to honour its commitments, while also attracting and retaining a younger, dynamic workforce.

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