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Kentucky Supreme Court strikes down pension reform law

Kentucky Gov. Matt Bevin

The Kentucky Supreme Court ruled Thursday that a contentious pension reform law backed by Gov. Matt Bevin is unconstitutional since it violated a state law requiring legislation to be read three times before passage.

SB 151, which was signed into law in April by Mr. Bevin, included provisions that enrolled new teachers into a cash balance plan instead of the existing defined benefit plan overseen by the $18.1 billion Kentucky Teachers' Retirement System, Frankfort. Language related to pension changes was included in the bill, though it was titled as a wastewater services bill, the higher court ruled.

"Upon review, we conclude that the passage of SB 151 did not comply with the three readings requirement … and that the legislation is, therefore, constitutionally invalid and declared void," the court's 44-page opinion said.

"In the House, it received two readings as a bill, in substance and title, pertaining to local wastewater services, and then it received a final 'reading' in the House, still designated by title as a bill pertaining to local wastewater service but with its textual content relating exclusively to public pension reform. Consequently, SB 151 was never 'read' in either chamber by its title as an act relating to retirement and public pensions," the ruling later said.

Shortly after the law was passed in April, Attorney General Andy Beshear's office filed a lawsuit in Franklin County Circuit Court over the matter.

Before the case was moved to Kentucky's Supreme Court, a lower circuit court struck down the law in a June ruling, prompting Mr. Bevin to quickly file an appeal.

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 (using a level-dollar amortization method 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.

In October 2017, Mr. Bevin's office listed total unfunded liabilities for KRS, KTRS and the $327 million Kentucky Judicial Form Retirement System, Frankfort, at $64 billion.

On Thursday, Mr. Bevin in a statement called the recent ruling an "unprecedented power grab by activist judges."

"By striking down SB 151 based on process, rather than merit, the Kentucky Supreme Court has chosen to take for itself the law-making power that the constitution grants to the legislature. This is very dangerous. In the long term, this will erode the rule of law that is the foundation of our government, but more immediately, this will destroy the financial condition of Kentucky," he said.

Meanwhile, Mr. Beshear issued a statement that said the unanimous 7-0 ruling was "a landmark win for every teacher, police officer, firefighter, social worker, EMS and all our hardworking public servants."

"It fully and finally voids the illegal cuts to their retirement, and clearly states that the governor and General Assembly violated the Constitution. The decision is also an important win for good government and transparency. It sends a message that the Constitution does not allow lawmakers to hide their actions. Because of today's ruling, an 11-page sewer bill can never again be turned into a 291-page pension bill and passed in just six hours," Mr. Beshear added.