Bevin’s pension bill has a few surprises, such as where that 3 percent pay cut goes

Oct. 31--There are at least a few surprises tucked into Republican Gov. Matt Bevin's 505-page draft legislation that would overhaul the state's public retirement systems.

One is that a controversial 3 percent pay cut for school teachers and state and local government employees -- which Bevin and top GOP lawmakers touted last week as critical in order to shore up the retiree health insurance funds -- would not actually add any money to those funds.

Rather, the additional money to be taken from teachers' and public employees' salaries and deposited into the retiree health insurance funds -- an estimated $243 million next year -- would be offset by the equivalent loss of current contributions from their employers, which would be diverted to the separately managed pension funds.

In other words, "the health insurance funds would get exactly the same amount of money as they did before, but you're just changing who pays for it. You're just shifting the cost to teachers and workers," said Jason Bailey, who has been studying the pension proposals for the liberal-leaning Kentucky Center for Economic Policy in Berea.

"At the end of this shuffle, that's a couple hundred million dollars the state doesn't have to come up with now, and that will help them with the larger unfunded liability they have to address," Bailey said. "But to do it this way, where you're basically trying to hide what you're attempting, that just engenders distrust. The state would be better off if it explained itself."

Bevin's office did not respond to a request for comment Monday.

Last week, Bevin's office said that his pension proposal called for 3 percent paycheck deductions from nearly 208,000 teachers and public employees, on top of what they already pay for retiree health care, in order to strengthen those insurance funds at the Teachers' Retirement System of Kentucky and the Kentucky Retirement Systems.

"The retiree health care plans are underfunded," Bevin spokeswoman Amanda Stamper said at the time. "The 3 percent of salary contribution will shore up the health care plans that provide health benefits for life beginning at retirement."

Bevin's office made the draft language of the pension bill available to lawmakers Friday night and posted it on the state's official pensions website, pensions.ky.gov. However, the governor has not yet announced a date for a special legislative session to act on changes to the state's public retirement systems.

Much of the bill's contents has been discussed by Bevin in recent weeks. If adopted by the legislature, it would place teachers and public employees hired after next July in defined-contribution accounts, rather than traditional pensions, shifting the burden to them to save enough for their retirements, but offering employer matches of 6 to 9 percent of salary.

Existing retirees and employees would get to keep most of the benefits they were expecting, including defined-benefits pensions, although not all. For example, retired teachers would forfeit cost-of-living adjustments for five years, an especially painful squeeze since they do not get Social Security, and teachers could not contribute to their pensions beyond 27 years of service, except for one three-year window that would begin in 2018, a maneuver intended to avoid an exodus of retiring teachers next spring.

It wasn't clear on Monday that Bevin and Republican House and Senate leaders had enough votes to pass a pension bill through both chambers, despite their solid majority control of the legislature. At least one GOP House member -- C. Wesley Morgan of Richmond -- announced on social media that he will not vote for the pension bill that Bevin unveiled. A week ago, Morgan faced an auditorium in his hometown packed with hundreds of educators who oppose the changes Bevin wants.

"I can unequivocally promise to each and every one of my constituents that I will NOT vote for this pension bill," Morgan wrote on Twitter.

"Speaker (Jeff) Hoover is a friend and I have great respect for him. We agree on many things. But my loyalty belongs to the people of Madison County," Morgan continued. "I agree there is a problem. But we need more time, transparency, and consideration before we tackle this issue that affects so many Kentuckians."

Other House Republicans were declining to take a stand on the pension bill Monday.

"It's a complex, it's a very detailed bill. I'll reserve comment until I've had the opportunity to read the whole thing in its totality," said state Rep. Ken Fleming, R-Louisville, who is a member of the Public Pension Oversight Board. "I hope to have it read by next weekend."

Other issues being raised by critics of the bill include:

-- In the future, the old and new governing boards that would manage the retirement systems -- TRS, KRS, the Public Employees Retirement System and the Kentucky Public Employees Deferred Compensation Authority -- would be dominated or filled entirely by gubernatorial appointees, giving Kentucky's governor ultimate control over billions of dollars in investments.

-- Employees in the new defined-contribution systems would have to pay extra to buy death or disability insurance benefits rather than having it provided for them by their employers. This could be a particular burden for teachers, who are not enrolled in Social Security and would not qualify for Social Security Disability Insurance as most American workers would.

-- Retirement benefits awarded under the newly-established Public Employees Retirement System would not be protected by the so-called "inviolable contract" that has traditionally shielded the retirement benefits of teachers and public employees. That means a new governor or legislature could make any changes they chose.

"As we continue to work through the 500 pages in this bill, one thing is clear -- this bill will hurt public employees and our state as a whole. Reducing public employee benefits will hurt their retirement security, negatively impact local economies and affect recruitment and retention in our state agencies and schools," the Kentucky Public Pension Coalition said in a statement. The organization represents public sector workers from around the state.

"Kentucky's public employees have paid into the pension system their entire career," the group said. "They paid their share, while the state legislature didn't pay theirs. As a coalition, KPPC firmly stands in opposition to this piece of legislation."

John Cheves: 859-231-3266, @BGPolitics

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