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Judge strikes down Kentucky pension reform law

Says the state Legislature's process violated the state constitution

A Franklin County Circuit Court judge ruled Wednesday that a Kentucky pension reform law passed earlier this year was unconstitutional.

In his ruling, Judge Phillip Shepherd wrote that the manner in which the pension reform was passed violated the state constitution and was unenforceable.

Violations included failing to receive "a majority vote" of all members of the Kentucky House of Representatives (a requirement for spending bills or bills that create debt) and failing to receive three readings on three separate dates, Mr. Shepherd wrote.

On April 11 — one day after the pension reform package was signed into law by Gov. Matt Bevin — Attorney General Andy Beshear's office filed a lawsuit against Mr. Bevin and legislative leaders, arguing that the measure violated an "inviolable contract" by reducing workers' rights and benefits. Mr. Beshear's lawsuit also condemned lawmakers for passing a bill that lacked an actuarial analysis at the time and was not subject to public comment or testimony, and for not allowing sufficient time to fully digest the changes before the bill went to a vote. The pension reforms had been tacked onto a bill that initially dealt with wastewater-related services.

Mr. Shepherd wrote Wednesday that he did not address the attorney general's inviolable contract claim because the bill's legislative process violated the state constitution.

Under the pension reform law, teachers hired after Jan. 1, 2019, would have been enrolled in a cash balance plan instead of the existing defined benefit plan at the $18.1 billion Kentucky Teachers' Retirement System, Frankfort.

Other changes under the law include a reset of the 30-year amortization period to pay off the unfunded liabilities of the $17.4 billion Kentucky Retirement System, Frankfort; a change to the way unfunded liabilities are paid off (a level-dollar amortization method would be used rather than a percentage of payroll); and a prohibition on putting unused sick days toward retirement. KRS employees also would have been able to choose between participating in their existing cash balance plan or a new 401(a) plan.

Last October, Mr. Bevin's office listed total unfunded liabilities for KRS, KTRS and the $327 million Kentucky Judicial Form Retirement System, Frankfort, at $64 billion.

Elizabeth Kuhn, a spokeswoman for Gov. Bevin, said in an emailed statement that an appeal from the governor's legal team was "imminent."

"Judge Shepherd refused to consider whether or not the bill violates the inviolable contract when issuing his ruling, and he invalidated the bill based, in part, on a procedural argument not even raised by Attorney General Beshear," Ms. Kuhn added in the statement. "The consequences of this ruling are tremendous for Kentucky because hundreds, if not thousands, of bills have previously been passed by the General Assembly using the exact same process as (the pension reform law). If all of these bills are now invalidated based on Judge Shepherd's ruling, our legal system will descend into chaos. For example, cities and counties will go bankrupt without pension phase-in funding and programs to combat the drug epidemic will be negatively impacted."

A spokesman for Mr. Beshear could not immediately be reached for comment.