FRANKFORT, Ky. — Although it pulls far back from sweeping structural changes proposed last fall, a revised pension reform bill will save taxpayers about $4.8 billion over the next 30 years and put Kentucky on course to resolving its massive pension crisis.
That was the message of key majority Republicans on Wednesday, less than a day after the long-awaited pension reform bill was filed in the Senate.
“This can’s not going to be kicked down the road anymore,” said Sen. Joe Bowen, an Owensboro Republican who sponsored the measure, designated as Senate Bill 1.
“We think we have produced a product that is data-driven and is thoughtful to all the stakeholders,” said House Speaker Pro Tem David Osborne, R-Prospect.
The 289-page bill would produce the savings by cutting some benefits and making other changes to encourage people to work longer before they retire and draw benefits.
The goal is the same one Gov. Matt Bevin has been spotlighting since he took office more than two years ago — paying down the roughly $43 billion in unfunded liabilities that make Kentucky’s pension system one of the worst-funded of all states.
But the bill does not go nearly as far as a proposal that Bevin and Republican leaders proposed last fall that would have transitioned Kentucky’s system from its traditional pension plans to 401(k)-like savings plans popular in the private sector.
The new bill rejects that approach.
“It’s simply more costly,” Osborne said of a shift to 401(k)-like plans. “There were some people that felt very, very strongly from an ideological standpoint to transition to a defined contribution, but when the data came back it just didn’t support financially our ability to do that. … With the difficult budget decisions we’re making right now, it’s very, very difficult to stand on ideology.”
Osborne and Senate President Robert Stivers, R-Manchester, said an actuarial analysis of the bill shows that its many parts combined to result in about $4.8 billion in savings over the next 30 years.
That analysis has not yet been released to the public, but Stivers said that it will be released before the full Senate takes up the bill in the coming weeks.
Stivers, Bowen and Osborne, who held a joint news conference on the bill Wednesday, said they believe that the bill will pass both chambers and signed into law by Bevin.
Bowen said the Republicans who crafted the bill in private listened to, and accounted for, the concerns of stakeholders who railed against the provisions of the early proposal released in October.
“I can’t imagine there will be a lot of pushback on this,” Bowen said. “… We have, in some measure, taken all of the concerns and molded it into this product.”
But the new bill immediately drew criticism, particularly over cuts to teacher benefits. The bill would reduce the 1.5 percent annual cost-of-living increase in teacher benefits to 0.75 percent for 12 years. And future teachers would not go into the traditional pension plan but be given a less generous “hybrid” plan that has features of both a traditional pension and a 401(k)-like plan.
Rep. Derrick Graham, D-Frankfort, said he’s not sure it will pass without significant changes. He said he can’t support several aspects of the bill including the reduction in teacher cost-of-living adjustments.
“What we really need to do is raise revenue,” Graham said. “It would be better if we stick with what we’ve got on pensions and found a new source of revenue.”
House Democratic Leader Rocky Adkins, of Sandy Hook, expressed similar concerns with the bill and said, “Teachers, retired teachers and public employees are very opposed to this bill. If they stay as engaged and energized as they have been, I think this bill is going to have to have some major revisions to pass the House of Representatives.”
Bevin has yet to comment publicly about the bill. Osborne said that in his recent talks with the governor “he was generally pleased that we have gotten to a point where we’re ready to move forward. This has obviously been one of his top priorities.”
Senate Bill 1 will get its first hearing next week before the Senate State and Local Government Committee, chaired by Bowen.