In the days since Governor Bevin vetoed a retirement bill affecting our quasi-governmental agencies and regional public universities, I have had many people ask me a lot of questions. Here are my responses to some of the more popular ones.
What is this issue about, exactly?
On July 1, the start of the fiscal year, our six regional public universities and agencies like public health departments and domesticviolence shelters are scheduled to see their monthly payments to the Kentucky Employee Retirement System go up by more than $100 million a year. Many simply cannot afford this without slashing services, and it’s possible some of the quasi-governmental agencies would close if the General Assembly does not act.
Why are these payments going up so fast right now?
In 2017, the Kentucky Retirement Systems’ board of directors — appointed by Governor Bevin — significantly lowered its assumptions, which in turn drove up the systems’ 30-year liabilities by billions of dollars. These changes should have been phased in over time, but since they weren’t, every employer paying into these systems suddenly saw their annual retirement payments jump dramatically. The General Assembly paid that higher amount in the current two-year budget, but gave a five-year phase-in to local governments (which contributes to the better-funded County Employees Retirement System) and a one-year freeze in payments to the regional universities and quasi-governmental agencies.
What would the bill have done?
It would have extended that one-year freeze to a second year, something virtually everyone supports, but it would extract a high cost for this short-term relief. It gave these institutions until the end of December to decide whether to stay in the retirement system and find a way to make the higher payments in 2020, or stay out and pay off their portion of the liabilities in the years ahead.
What would have happened if this bill had become law?
Most of our regional universities prefer staying out of the system because they say they can better control their costs that way. The quasi-governmental agencies would likely have been forced in that direction, too, since they will still not have the resources to make the higher retirement payments in 2020.
Why is that option bad?
There are several reasons, actually. First, many of these quasigovernmental agencies would not be able to pay off their liabilities for decades, even with the low interest rate the bill sets. Conversely, that low rate would force those still in the state retirement system to make up the difference, a cost measuring in the hundreds of millions of dollars.
Career employees hired by these institutions before 2014 could opt to stay in the state retirement system under this bill, even if their institutions drop out. However, if these employers defaulted just once on their payments to the state retirement system, the career employees would immediately and permanently be placed in a defined-contribution plan like a 401(k). Inexplicably, retirees who worked at these institutions would have their retirement checks stopped until the issue is resolved. Threatening the retirement security of potentially thousands of people while harming the nation’s lowest-funded public retirement system is the worst of both worlds.
Would this bill have affected teachers?
No. In fact, it wouldn’t have had a direct impact on teachers at the postsecondary level, either, or any public employee who works for state and local government or in a hazardous-duty job. Those working for the University of Kentucky and University of Louisville are unaffected as well, because they have their own retirement plans. Still, this bill sets a bad precedent and affects us all indirectly.
What happens next?
Under our state constitution, only a governor can call a special session and decide its subject matter, and Governor Bevin has promised to do just that before July 1. I am not happy that we’re looking at our second special session in less than seven months, because these matters could and should have been handled in the General Assembly’s 30-day regular session, which just ended a few weeks ago.
What’s your solution?
I voted for this bill because it was the only option before me that gave our health departments and other quasi-governmental agencies the short-term relief they absolutely must have. Still, I worried about the long-term harm this could have caused to the state retirement system and would have worked to fix that in 2020. Now that the bill is vetoed, I hope we can just enact the 12-month freeze so we have time to come up with a better solution next year. The entire House originally voted to take that course of action, and I believe it would give the public and stakeholders the input they should have had from the start.
This is a complicated issue, but I hope these answers offer some insight into what brought us to the stage and what may happen next. Whatever is decided, I will do my best to keep you informed.