Home » Bluegrass Institute calls for separate pension reform bills in response to high court’s ruling

Bluegrass Institute calls for separate pension reform bills in response to high court’s ruling

FRANKFORT, Ky. — The Kentucky Supreme Court’s decision to uphold Franklin Circuit Judge Phillip Shepherd’s earlier ruling that pension-reform legislation passed in the waning days of this year’s General Assembly was unconstitutional offers an opportunity to rethink how bills are filed, debated and voted on.

The court in a unanimous decision agreed with Shepherd that Senate Bill 151, which converted a sewer bill into pension-reform legislation, did not receive the three readings required by the Kentucky Constitution.

Such conversions occur when legislators want to introduce new legislation after the deadline for introducing bills has passed, as happened with SB 151.

Reform opponents succeeded earlier in the legislative session in stopping Senate Bill 1, which was very similar to the SB 151, from getting a floor vote in either body of the legislature after passing out of committee along party lines.

“While we understand that legislators have taken a similar approach with bills in the past, they should not have done so with legislation of this magnitude,” said Bluegrass Institute Pension Reform team director Dr. William F. Smith. “That said, this is also an opportunity to pass a clean bill that creates a more stable, secure and affordable retirement plan for Kentucky teachers now entering the system by separating such legislation from other parts of the bill that would be more likely to face a legal challenge.”

Along with a new bill for new teachers, Smith recommends: (KRS)

  • A separate bill transitioning the retirement systems from their current method of using a percentage of payroll to make payments on benefits and debt to a level-dollar approach designed to more rapidly pay off the systems’ debt.
  • Another bill changing current members’ benefits for which there’s widespread agreement are not protected by the inviolable contract, including ending:
    • future accrual of sick days, currently used to increase lifetime pension payments for TRS beneficiaries;
    • increasing the annual benefit factor from 2.5 percent to 3 percent for TRS members in the system for 30 years;
    • determining TRS pension benefits based on a final compensation determined by the highest three years’ salary; and
    • a guaranteed 4 percent investment credit for Kentucky Retirement Systems’ (KRS) Tier 3 members.
  • A fourth bill would address benefits for KRS members erroneously believed to be protected by the inviolable contract, including
    • annualizing service credits, whereby one month of service counts as an entire year when determining service credits;
    • utilizing allowances – such as compensation for uniforms – toward determining credible compensation, which determine pension benefits; and
    • using sick days to establish retirement eligibility.

“Rather than take an omnibus approach to pension-reform legislation, we urge lawmakers to separate issues for which there should be widespread agreement – such as passing a new retirement plan for new teachers – from the heated debate and legal delay that would likely occur regarding whether benefits are protected by the commonwealth’s inviolable contract with its state workers and teachers,” Smith added.

The Bluegrass Institute Pension Reform team is led by Dr. William F. Smith, director; Board Chairman Aaron Ammerman; and Jim Waters, the institute’s president and CEO.