The issues surrounding our public retirement systems are complex, but there is a simple answer for those asking what we should do: Keep what we have and fund it.
The truth is, these systems have served Kentucky well for decades. They provide a more secure retirement for those who teach our children, keep us healthy and safe and maintain our infrastructure, and they make it easier for schools and state and local governments to attract a quality workforce.
Keeping what we have and funding it is also what the General Assembly said it would do after enacting significant and bipartisan reforms in 2013. That will work as long as we maintain our financial commitments like we did in the 2014 and 2016 budget cycles and are going to do during the next two fiscal years. Last year, those systems earned between 13 and 15 percent on their investments, proof of what can happen when they have the funding they need.
It’s not as widely discussed, but these systems are also a crucial part of our economy, since they pay out about $4 billion annually to our public retirees. Overall, almost 500,000 people have an account with a state-run retirement system, representing about a sixth of our entire adult population.
I am not alone in my belief that we need to keep what we have. Countless public workers and their retirees have come together as well to make sure their voice is heard, and that united front has made all the difference. It is the reason there was no special legislative session on this issue last year, and it is also why House and Senate leaders waited for weeks before finally introducing their plan last week in Senate Bill 1.
While this bill does not go as far as the governor wants, it still goes too far. This legislation’s biggest impact would be on the teaching profession — from those considering it as a career to those who have long since retired.
In short, it would end for new teachers a retirement plan that has served their predecessors well for the last 80 years, and it would take tens of thousands of dollars from those who have retired from the classroom.
Those retired teachers would lose half of their 1.5 percent cost of living allowance for a dozen years, costing each of them more than $70,000 over a normal lifespan. It is crucial to note that these COLAs are prepaid by the teachers while they work, and they are designed to be like the raises given by Social Security, which teachers do not receive.
The new retirement plan proposed in Senate Bill 1 would not just apply to new teachers hired in 2019 and beyond; it also would cover those state and local government workers and classified schools employees hired since 2014.
There are now close to 60,000 employees in that group, and right now, their retirement plan guarantees at least four percent annual growth. Under Senate Bill 1, that four percent would drop to zero.
On a related retirement matter, I support a five-year phase-in of the suddenly steep retirement costs that our cities, counties and schools are currently on track to pay starting in July.
Compared to the current year, this additional cost represents a nearly 50 percent increase, or $317 million overall, that is due because of much more conservative projections by Kentucky Retirement Systems. By giving them a longer time to reach that total, they will be less likely to break their budgets, and this approach also reflects the fact that the retirement system for local public workers is funded well enough to be able to handle this financially.
As we wait to see what happens with pension reform, the House continued its work last week, despite protests by me and others, to scale back our workers comp and unemployment insurance programs.
The workers comp bill passed the House and, if enacted, would effectively end medical payments for many with a partial and permanent workplace injury after 15 years. I believe those already facing a lifetime of pain should not have to pay their own bills for an injury that was not their fault, especially with the program strong enough financially that the premiums businesses pay have been in decline for a dozen years.
A House committee, meanwhile, approved a significant cutback of unemployment benefits last week. This program is performing well, too, with $400 million in reserves. If the bill becomes law, however, it will have the biggest impact in rural counties here in eastern Kentucky that persistently face higher unemployment rates.
Either this week or next, the House is expected to vote for its version of the budget to run state government for the next two years. There are some difficult decisions to be made, but I am committed to doing what I can to make sure that we maintain our core services, especially when it comes to education. Many of our school districts simply cannot afford to keep their doors open if the governor’s proposed cuts are carried out.
I want to thank everyone who has traveled to the Capitol or reached out to me on social media, by phone or by email. If you’d like to send me a message about any issue now before the General Assembly, my email is Angie.Hatton@ lrc.ky.gov, and the toll-free legislative message line is 800- 372-7181. If you have a hearing impairment, it is 800-896-0305.