Pension reforms overturned by Supreme Court, Chamber and top officials say pension crisis must be addressed

In a unanimous decision released on Thursday, the Kentucky Supreme Court overturned the legislation making reforms primarily to the Kentucky Teachers’ Retirement System (KTRS) passed during the 2018 session of the General Assembly.

In its decision, the court stated the passage of Senate Bill 151 “did not comply with the three-reading requirement” for legislation and for that reason they ruled the bill is “constitutionally invalid and declared void.”

The bill was passed at the end of the legislative session after many revisions and changes to the original language, causing the General Assembly to place the language for the final version of the pension reforms in another bill that was already at the stage in the legislative process to get it passed before the final days.

Legislation requires three readings on the floor of each legislative chamber after being passed out of committee and before being passed by the full body.

Because the bill has been overturned, the legislature will likely take the issue up again in the 2019 session. (Read more on this below.)

In response to the ruling, the Kentucky Chamber released a statement expressing disappointment in the decision as the business community has been a vocal advocate of reforms to the state’s woefully underfunded pension systems.

“Today’s decision by the Kentucky Supreme Court is very unsettling for the business community. After several years of advocating for pension reform and a very difficult session that yielded actual progress, the Kentucky Chamber is very discouraged that we are back to square one. The billions of dollars in unfunded liability continue to weaken Kentucky’s bond rating and threatens investment in everything from infrastructure to education.  We urge the General Assembly to not be dissuaded from reforming the pension systems and to again pass meaningful reforms that will put our pension systems on a sustainable track through the process deemed constitutional by the Supreme Court,” Kentucky Chamber President and CEO Dave Adkisson said.

What Comes Next

In the weeks leading up to a decision by the court, the governor and legislative leaders have discussed what would happen if the bill was overturned and if the General Assembly should pass another bill to deal with reforms to the retirement system.

In an interview with The Bottom Line, Gov. Matt Bevin said the practice seen in recent months of the Kentucky Supreme Court making laws from the bench is extremely dangerous and while the three branches of government- executive, judicial, and legislative, are coequal, the legislature holds the most power, as it is the closest to the people.

“If the Supreme Court chooses to overstep their authority, as they have in other instances….if the same thing happens on this pension bill, this state is in big trouble. Because then the failure of the pension system will be on the backs of those seven jurists. I don’t think they would want that responsibility, they shouldn’t. It’s not their authority and they shouldn’t be dictating to the legislature how the legislature passes bills or what they do when passing bills,” Bevin said.

When asked what the legislature should do if the pension reform bill is overturned by the court, Bevin said while he cannot craft legislation and wouldn’t suggest what changes the legislature should make to a new bill, he said something must be done as Kentucky has the worst funded pension systems in the country.

“Our systems are destined for failure on the track they are on. They will not survive. The money will run out. This is a hard thing for people to believe, they say ‘well just get it from somewhere else.’ Raise taxes, people leave. It’s not just as simple as that. So, we have got to fix this,” Bevin said.

At the Kentucky Chamber 2019 Legislative Preview Conference, House Speaker David Osborne said they haven’t had the conversation on what will be done if the pension bill is overturned by the court but said he does believe they would tackle it again, even if the legislation doesn’t look identical to the bill passed in the 2018 session.

Kentucky Senate President Robert Stivers also said if the bill was overturned the legislature must revisit the issue of pension reforms. “I think we can do that and I think we should because it is a problem that has not gone away,” Stivers said.

Following the ruling Thursday, the Kentucky House Republican majority leadership team released a statement with a commitment to deal with the issue moving forward.

“Because of this disappointing ruling, state employee retirement will continue to be the most insolvent pension system in America, and will serve as a drag on Kentucky’s entire economy. Senate Bill 151 was the first step in moving our pension systems toward a new day of solvency and health. Today’s decision puts retirement checks for hardworking public employees at risk, and is a major setback to the difficult work undertaken to reverse the indecision and inaction of the past two decades. Despite this, we are committed to leading in the effort to enact a solution for the critical situation that once again faces our Commonwealth.”