POST UPDATED WITH VIDEO: After weeks of negotiations, Kentucky Gov. Matt Bevin and legislative leaders announced their pension reform plan Wednesday that will put new hires into a 401k-style plan and keep promises made to current and retired state employees.
At the press conference Wednesday, Gov. Bevin and the legislative leaders highlighted ten key points of the reform plan. Bevin said the new plan to reform the state’s woefully underfunded pension plans will include bringing all new hires, including teachers, into a defined-contribution plan, with the exception of hazardous employees which include police and fire.
Teachers will not be in social security, an issue Bevin noted was a main concern of the leaders going into negotiations but stated the teachers’ groups did not want the new teachers to be put in social security.
Tier 1 and Tier 2 employees, which are employees who still have full defined benefit plans, can retire with their pension after 27 years, keeping the promise of their pension. However, if they choose to work longer than 27 years then any time after 27 years they will then contribute to a defined contribution plan.
Tier 3 employees of KRS, who entered the system under a hybrid cash balance plan during 2013 reforms, will be moved to a full defined contribution plan in these reforms. Additionally, some state will have the option to move to a defined contribution plan to make their retirement more portable.
“We have exhaustively gone through everything we can to ensure that we do in fact deliver on the promise. And keeping the promise is really the crux of what we are doing here today,” Bevin said.
A big part of the plan dealing with funding has to do with moving to a “level dollar funding mechanism” which will help the state pay down its debt rather than continuing to add to the problem by not funding the systems correctly.
“This plan is long overdue,” Hoover said. “We are going to do what we need to do. Because failing to act will result in public pension system in Kentucky to go bankrupt. And we simply cannot allow that.”
Things that are not in the plan that have previously been floated during discussions and with release of the PFM report include buyouts of current employees, raising the retirement age, and claw back of cost of living adjustments (COLAs).
All legislators will be moved into a defined-contribution plan moving forward and be under KRS and the jurisdiction of their board like other state employees.
There will also not be an emergency clause on the bill, which will allow employees the chance to understand the plan and make their decisions without having to rush.
The Governor also explained that the plan should improve the Commonwealth’s rating with credit agencies, which he noted is very important to the state’s business community. Agencies have downgraded Kentucky’s rating in the past because of the unfunded pension crisis.
“This is a morally sound plan, it is a legally defensible plan, and something the people of Kentucky will accept as the direction we need to go in,” Stivers said.
Gov. Bevin said he will call the special session “as soon as we’re ready” as the bill is still being crafted and they want to ensure the legislation is accurate.
The governor also added that the pension plans are going to continue to require what has been paid into the system and likely some additional funds. He added that because of this, he expects the upcoming budget session to be “brutally difficult” and said modernizing the state’s tax code is still on the table but will come at a different time.
Watch a small video of some of Bevin’s remarks below and find full video coverage on the governor’s Facebook page here.