Kentucky Attorney General Andy Beshear told state legislators in a letter on Wednesday that the new legislation to substantially alter the public pension system for state workers is illegal and would be struck down in a lawsuit if passed, as it violates the inviolable contract of benefits promised to them under state law.
Senate Bill 1, unveiled by Republican leadership of the Kentucky General Assembly last week, was significantly different from their original proposal released last fall, which would have pushed most government workers from a defined benefit plan to a 401(k)-style plan.
Calling this proposal too expensive, the Republicans threw out that provision from SB 1, but included changes such as cutting the 1.5 percent cost-of-living adjustments for teachers in half over the next 12 years and placing new teachers in a hybrid cash balance plan that includes both a traditional defined benefit plan and a 401- (k)-style plan.
However, a coalition of public employee unions said that SB 1 was still “unacceptable” even with those changes, as they were “still very concerned about many aspects of the bill that harm dedicated public servants, including unfairly reducing the benefits they have earned.”
In his letter to legislators Wednesday, Beshear stated that this was his first opportunity to advise them on the “multiple legal violations” within the 289-page bill, as he “was not provided an advance copy.” He stated that legislators would violate the inviolable contract of workers if they pass the current version of SB 1 into law, “as it would materially reduce, alter, or impair the contract’s guaranteed benefits.”
“For teachers, SB 1 unlawfully reduces cost of living adjustments, caps the use of sick time, extends years of service to qualify for some benefits, and forces teachers to contribute significantly more of their salaries to their retirements,” wrote Beshear. “For state police officers, state employees, and county employees, the bill unlawfully changes how public employees’ retirement is calculated, reduces or caps sick time benefits, and imposes new deductions on already strapped salaries.”
Beshear’s letter went on to list what he determined were 21 different violations of the inviolable contract for teachers, state workers, state police and county employees, including the reduction in costs of living adjustments for teachers and the caps on sick time that can be used to increase service credits for retirement benefits.
Citing those alleged violations, Beshear stated that “at this time it is clear that if you pass SB 1 into law, you should expect numerous lawsuits, which the Commonwealth will lose.”
Beshear then urged the legislators “to take the necessary and appropriate steps to address these legal concerns and any others that might arise during the legislative process,” citing their oath to protect the state constitution. He added that “if another agency is willing to provide its legal analysis, I would be happy to review it and provide additional comments.”
Beshear then editorialized with his own idea for strengthening the badly underfunded public pension system, suggesting that “instead of passing SB 1, you consider legalizing expanded gaming. By doing so, you can create a dedicated revenue stream that will begin to address the unfunded liability, and will do so without raising taxes.”
The Senate State & Local Government Committee was expected to vote on SB 1 at their noon meeting on Wednesday, but Sen. Joe Bowen — the committee’s chair and the lead sponsor of the bill — announced that he was submitting a substitute bill with additional changes that were made after receiving feedback from public employees.
Bowen added that the amended bill would not be voted on by the committee until its financial impact had been fully scored by the Legislative Research Commission.
Listing the changes made to SB 1 in the substitute bill, Bowen told the committee that the annual cost of living adjustment for teachers would now be 1 percent until the Kentucky Teachers’ Retirement System was 90 percent funded. The current funding ratio of KTRS is estimated to be 55 percent, and the last time this pension plan was 90 percent funded was in 2001.
Bowen also stated that new non-hazardous state and county employees would have the ability under the substitute bill to choose to participate in a defined contribution account.
After the committee meeting — in which a large contingent of public employees in the room often heckled or jeered Bowen — the senator told the media that “it’s unfortunate that at this late date the attorney general tries to weigh in on this.”
“We’ve been working on this bill for months on end,” said Bowen. “We started engaging on this process last July, last August. And now at the 11th hour the attorney general has decided to weigh in on this, and I think that’s quite unfortunate.”
Republican Senate President Robert Stivers added that some of the provisions of SB 1 that Beshear called illegal were actually reforms suggested over the past year by public employee groups.
This post has been updated to include the comments of Bowen and Stivers.