Super Rich Pensions Root of Political Change

What you are about to read may seem like an expose on greed, because it is, to a point. The Kentucky General Assembly in 2005 passed a little-known bill (HB 299) that allowed lawmakers to enrich their pensions. While some of the examples in this story may be disturbing, the essence, in total, is not the temporary gains. Above the greed is a larger concern: a shift of political power in the state’s capitol that is directly connected to the pension bill.

You may remember the funny bone song, “Dry Bones.” “The ankle bone’s connected to the knee bone, the knee bone’s connected to the thigh bone.”

Well, legislators’ pensions are connected to recent Senate resignations, and Senate resignations are connected to control of the chamber, and from there: legislation, redistricting and, possibly, one-party rule.

That 2005 pension bill has other unintended consequences. Legislators work part-time for the commonwealth. Nonetheless, the size of their pensions exceeds those of state and local government employees, all of whom work full-time. The gap is so wide and the greed is so great, legislators have seriously compromised their ability to fix the $29.7 billion (and growing) unfunded liability in the state’s other retirement systems.

In addition, the bill handed the office of the governor a powerful new tool that he and all future governors can use to sway legislators’ votes on important issues confronting them in future sessions. The carrot is a high-paying government job, which a legislator can hold for three years and boost his or her legislative pension, in some cases by more than $1 million. For state Rep. Harry Moberly, for example, that could mean at least $2.6 million; House Speaker Greg Stumbo, at least $1.2 million; former state Rep. J.R. Gray, probably $1.2 million; and state Sen. David Boswell has a shot at $1.1 million. If certain information wasn’t blocked from the public, we might add former state Sen. Charlie Borders and Sen. Dan Kelly to the “Million-Dollar Club.”

Here’s an example that illustrates what’s happening.

Former state Rep. Steve Nunn served about one year as deputy secretary of the Cabinet for Health and Family Services before he resigned in March. Nunn had served 16 years in the House of Representatives before taking the cabinet job at $125,000 a year.

On top of Nunn's salary – just for serving that one year in the cabinet, and because it’s a job where he participated in a government-administered pension system (KERS) – $244,062 was added to his legislative pension. You could say his total compensation for being the deputy secretary for one year was $369,062.

That’s an estimate, but it’s a sound estimate, based on information obtained by Kentucky Roll Call under Kentucky’s open records law, and based on the Social Security life expectancy table and a number of pension-related variables. What we don’t know, because the information is blocked from the public, is whether Nunn and other legislators mentioned throughout this story bought “air time” or time from other government jobs, which would also increase their pensions.

Nunn’s standard pension would have been $15,902 a year, but the state job almost doubled it to $29,187; and it increased the lifetime payout from $300,699 to $551,917 – an increase of $251,218, or 83 percent.

Had Nunn stayed on as deputy secretary for a total of three years, it would have increased his legislative pension to $55,000 a year – a hike that would have more than tripled his standard pension. Over a lifetime, it would have given him an extra $739,351. That would have been $246,450 a year (for three years), on top of his salary, only because he is a former lawmaker who was serving in the 2005 General Assembly when his colleagues passed the pension-enrichment bill.

Quitting the job cost Nunn nearly a half-million dollars ($488,133). Nunn voted against the bill.

Legislators can begin drawing their pension at age 65 without a penalty for early withdrawal. Nunn can begin drawing his at age 62 without a penalty, because legislators get one year reduced for each five years of legislative service or bought time. He will be 57 on Nov. 4.

By now, of course, you are aware that Nunn has been charged for allegedly murdering his ex-fiancé, Amanda Ross, in Lexington on Sept. 11 and could face the death penalty.

In the wake of BOPTROT, a scandal in the early 1990s that sent 10 percent of the Kentucky Legislature to prison, lawmakers enacted a law in 1993 that prohibits a legislator or an ex-legislator from drawing a legislative pension if he or she is convicted of a felony “related to his duties as a legislator.” That clause appears to mean that Nunn can draw his legislative pension, even if he’s convicted of a felony.

KRS 6.696 reads in its entirety, “(1) A legislator or former legislator convicted of a felony relating to his duties as a legislator, in any state or federal court of competent jurisdiction, shall forfeit rights and benefits earned after September 16, 1993, under the state administered retirement plan to which contributions have been made as a result of his service in the General Assembly, except for the return of his accumulated contributions and interest credited on those contributions. (2) The payment of retirement benefits ordered forfeited shall be stayed pending any appeal of the conviction. If the conviction is reversed on final judgment, no retirement benefits shall be forfeited.”

So, apparently whatever happens with the murder trial, Nunn can begin drawing in November 2014 a legislative pension estimated at $29,187 a year for the rest of his life.

Working in Government – Again

The number of lawmakers who have worked in other government jobs, which they now can use in calculating their legislative pensions, is pervasive

About one legislator out of three, roughly 15 in the Senate and at least 30 in the House, have held (or hold) a local or state government job. All those people are eligible to use their service in those jobs to enrich their legislative pensions. In some cases, they may not do so, because they may be drawing a higher salary as a legislator than they were at the government job.

Sen. Julian Carroll, for instance, can base his legislative pension on his salary as governor (1974-1979), although he may be making more now as a senator than he was then as governor. But you see the point. Former state Sen. Dan Mongiardo’s legislative pension will be based on his $105,744 salary as lieutenant governor, giving him an extra $232,995.

Senators: Denise Harper Angel was the PVA of Jefferson County; Johnny Ray Turner was a high school basketball coach; Ed Worley was the city manager of Richmond; Ken Winters was a dean at Murray State University; Carroll Gibson was a circuit court clerk; Jack Westwood was a school teacher; Perry Clark works for the University of Louisville; and the list goes on.

House: Derrick Graham is a classroom teacher; Hubert Collins, Rick Nelson, Charles Miller and Teddy Edmonds are retired teachers; Greg Stumbo was attorney general; C.B. Embry was a county judge-executive; Reginald Meeks and Mary Lou Marzian work for the University of Louisville; and the list goes on.

More important than who did work for government is who might. Future government jobs will bring higher salaries and have a great effect on the legislators’ pensions. Legislators, especially those with 20 years or more in the General Assembly, will be tempted to keep one eye on taking care of business in the House and Senate, and the other eye on placating the governor, in the hopes of landing a high-paying job to seriously enhance their pensions.

A Strategy

The pension strategy is working for the Democrats. Sen. Charlie Borders, R-Russell, resigned from the Senate in July to take a $117,000-a-year job at the Public Service Commission, the agency that regulates utilities. Borders gets the salary and at least $737,516 extra, payable monthly through his legislative pension. It was a win for Gov. Steve Beshear, too. He called a special election to fill the vacant Senate seat, and state Rep. Robin Webb, D-Grayson, won it – a take-away for the Democrats, who closed the Republican advantage in the Senate to 20-17-1. State Sen. Bob Leeper of Paducah is an independent, but he caucuses with the Republicans. So, in reality, the Republican advantage remains at 21-17.

It has been widely reported that Majority Floor Leader Dan Kelly, R-Springfield, is in line to receive a gubernatorial appointment to a $123,384-a-year job to fill an unexpired term of a circuit judge. A decision on the appointment could come in October. If Kelly gets the judgeship, the Democrats are favored to win the Senate seat he would vacate. That would narrow the Republicans’ advantage in the Senate to 20-18 (still counting Leeper in the R camp) and create a precarious situation for Senate President David Williams, R-Burkesville, because it could bring Sen. Tom Buford, R-Nicholasville, to the forefront as a wildcard in deciding which party controls the Senate.

Buford is known as a maverick in Williams’ camp. At the age of 60, he has served in the Senate 19 years, and he’s on the governor’s side in favor of allowing slots at the state’s racetracks. It would not come as a surprise if Buford were to be appointed to a state job during Beshear’s first or second administration (if there is a second one, which at the moment seems likely).

If Buford were to side with the Democrats, and a Democrat were to win Kelly’s vacated seat, a floor vote to oust Williams could throw the Senate into a 19-19 tie on Jan. 5, the first day of the 2010 session (for now, it appears unlikely there will be a special session this fall). On a tie vote, Williams stays president. But it could force some changes, including shared power of some sort.

History

The lawmakers created their pension system in 1980 and modeled it after the judges’ pension system. In creating their own system, the lawmakers made it richer than what state and local government employees’ have, but not quite as rich as the judges’ plan, which has been in place since 1960. However, at their very next chance, in the 1982 session, lawmakers enriched their pensions, creating bonanzas for the bulk of sitting members, an act that is remembered to this day as the “greed bill.”

How the Pension Bonanza Came About

The Senate Republican leadership in March 2005 inserted the pension language into an innocuous bill that came over from the Democrat-controlled House.

Sen. Damon Thayer, R-Georgetown, was chairman of the State Government Committee, where the switcheroo took place. Four of the five Senate Republican leaders – David Williams, Dan Kelly, Richie Sanders and Dan Seum – voted for the bill on the Senate floor that day. Sen. Katie Stine, president pro tem, did not vote when the bill came up, one of six senators who did not cast a vote. The bill passed the Senate 30-2, and then passed the House the same day, 48-36.

In the bill they enacted, HB 299, legislators made five major changes to their pensions.

1. They lowered from 30 to 27 the number of years they must serve before they can start drawing their pension prior to age 65 without an early withdrawal penalty.
2. They fixed it so that any member who was not in the legislative retirement plan could join, by a certain date, and be eligible for the bonanzas to come.
3. They lowered the salary multiplying-factor used in figuring their pension to make it a “high three” instead of a “high five” — the only pension system with a “high three” among the six systems administered by the state.
4. They eliminated their $27,500 “assumed” salary as a multiplying-factor and replaced it with their real salary so that change No. 5 below would make sense.
5. They bestowed upon themselves a pension privilege called “reciprocity,” which means all legislators serving in the 2005 session, when they passed these changes, and all legislators elected in future years, could calculate their pensions NOT on their part-time salary as a legislator but on their full-time salary at another state or local government job after they left the legislature or before they came. The only restriction being, the pre- or post-legislative job must be covered by one of Kentucky’s other government-administered pension systems.

Reciprocity is what allows lawmakers to convert their standard pensions into super pensions. Judges don’t have reciprocity, but all others in the state retirement systems do; and it’s on that point that some legislators rationalize it for themselves. There is a big difference, however. The service credit rate (the percentage figure used in calculating pensions) is greater for legislators — in a few instances, much greater – than it is for other government employees, except judges. In 1982, lawmakers lowered their percentage rate — and the judges’ — to make them equal at 2.75 percent.

Lawmakers are considered part-time employees, while judges and other government employees work full-time.

Second Pension

In 1998, legislators voted themselves an automatic second pension, this one in the same retirement system as county and state employees. The second pension takes effect when their legislative pensions max out. The authority for this double dipping is KRS 62.680(3), written by former state Sen. Albert Robinson, R-London.

\Today, seven serving legislators have second pensions – Sens. Walter Blevins and David Boswell, and Reps. Tom Burch, Danny Ford, Jody Richards, Tom Riner and Greg Stumbo. An eighth legislator, Rep. Harry Moberly, dropped his second pension at KERS so he could enroll in the teachers’ retirement system through his employer, Eastern Kentucky University, which will substantially increase his legislative pension.

Rep. Harry Moberly

Rep. Harry Moberly entered the legislature with the Freshman Class of 1980, and has served 29 years. Members of the 1980s class were assigned a service credit rate (SCR) of 4.15 percent. Only Moberly and Speaker Stumbo today have that rate. (Only four legislators, currently serving, have the highest rate, which is 5.0 percent: Sen. David Boswell and Reps. Tom Burch, Jody Richards and Tom Riner; and three legislators have 3.5 percent: Sens. Walter Blevins and Dan Seum, and Rep. Danny Ford. All others have 2.75.)

Moberly’s employer is Eastern Kentucky University, where he’s vice president of Administrative Affairs at $168,686 a year. On Dec. 31, 2004, after 25 years of legislative serve, he maxed out on his legislative pension — meaning he can draw 100 percent of his salary when he starts his pension.

Moberly’s current “high-three” salary from his legislative service is $41,035. He’s 59 years old and can start drawing his legislative pension next year without an early retirement penalty. So Moberly can draw 100 percent of his salary. However, thanks to reciprocity, his salary won’ be what he earned in the legislature, it will be what he’s earning at the university, which is four times greater than his legislative pay. And, presumably, the EKU pay will increase each year, so the longer he waits to start his legislative pension, the larger it will be.

As of right now, Moberly’s legislative pension would be about $168,686 a year for the rest of his life. That’s $127,651 per year more as a result of the 2005 legislation; that’s a lifetime windfall estimate at $2.6 million. He voted for the bill.

Sen. Dan Kelly

If Sen. Dan Kelly is offered and accepts the judgeship, it could more than double his legislative pension from about $30,000 a year to about $64,000, and a lifetime increase estimated at $645,000. That’s a minimum. It could be substantially higher if he has bought five years of “air time,” as he’s entitled to do after 15 years in the legislature, and also has bought credit for his military service. Then, he could draw 100 percent of the judge’s pay as his legislative pension after being a judge for three years. In that case, his legislative pension could be at least $123,384 a year, and a lifetime increase estimated at $2,333,191. He voted for the bill.

In other words, if Kelly is appointed circuit judge and then serves three years in that capacity, it’s like someone offering him $2.3 million to take the job (collectible monthly when he starts drawing his legislative pension). And that doesn’t count his salary as a judge or his second pension as a judge.

Labor Cabinet Secretary J.R. Gray

When Beshear was appointing his cabinet secretaries right after the November 2007 election, he picked then-state Rep. J.R. Gray, D-Benton, to head the Labor Cabinet. Gray came to Frankfort as a lawmaker in 1976. Therefore, his pension percent rate is 5 percent. His salary as a cabinet secretary is $136,500 a year, according to The Courier-Journal salary Web site. If he stays on at the Labor Cabinet through December of next year, that would give him three years and, therefore, his “high three” would be his cabinet secretary pay.

The 2005 legislation enriches Gray’s legislative pension by an estimated $1.2 million – a bonus, so to speak, of more than $400,000 a year (for three years), on top of his $136,500-a-year salary. Said another way: The systems are giving Gray more than a half-million dollars a year (salary + enhanced pension for three years) to head the Labor Cabinet. That’s four times more than any other cabinet secretary is paid (and, yes, that’s a fair assessment; it’s just that the bulk of this compensation is channeled through his legislative pension). He voted for HB 299.

House Speaker Greg Stumbo

Speaker Greg Stumbo is also a big winner with the legislative pension bonanza, even though he was not serving in the legislature when HB 299 was enacted in 2005: at the time, he was attorney general. Nonetheless, he will reap an estimated $1,244,694 extra as a result of the bill, because he returned to the legislature. The 2005 legislation, you will remember, applies also to legislators elected in the future.

Within a month after Beshear was sworn into the governor’s office, Stumbo met with him and almost immediately afterward, freshman state Rep. Brandon Spencer, D-Prestonsburg, who held Stumbo’s old House seat in District 95, suddenly resigned. The governor called a special election to fill Spencer’s unexpired term, and Stumbo won that special election on Feb. 5, 2008.

Three weeks later, on Feb. 29, 2008, back in the legislature, Stumbo maxed out on his legislative pension at 24 years and two months. In summary, returning to the legislature made him eligible to draw his legislative pension figured on his salary as attorney general; to max out his pension made him eligible (he otherwise would not have been eligible) to draw 100 percent of his AG salary (high three averaged); and it triggered the 1998 law that provided him with a second pension to succeed the one he maxed out on – the second pension is not in the Legislators Retirement Plan, but in the county and state employees’ plan, where he already has a pension account from being a state employee during his four years as AG.

Stumbo will draw 100 percent of his AG salary, $98,824 a year, every year for the rest of his life once he starts drawing his legislative pension, which could only have occurred if he returned to the legislature.

Without the reciprocity provision in the 2005 law, and without him returning to the legislature, Stumbo’s legislative pension would be around $39,792 a year. So, his decision to return to the legislature was more than it appeared at the time. It gave Stumbo an extra $63,311 a year for the rest of his life once he starts to draw, which could be at age 61 – that’s when he can begin his pension without a penalty for early withdrawal. It’s a lifetime windfall estimated at $1,244,694, a nice reward for winning one election (which really wasn’t much of an election at all – Stumbo won 80 percent of the vote).

As Stumbo’s return to the legislature shows, a break in service has no bearing on service years previously accumulated. In tallying Stumbo’s total years of service, for the purposes of calculating his legislative pension, his four-year absence was a non-factor.

Sen. David Boswell

Sen. David Boswell entered the legislature as a member of the House in 1978, so he has a 5 percent service credit rate. He had been in the House six years by 1983 when he was elected commissioner of Agriculture – serving in that capacity during the administration of Gov. Martha Layne Collins.

In 1990, Boswell was elected to the Senate, where he has served continuously. This year marks 26 years he’s been a lawmaker. Because his percentage multiplier is high, he maxed out in his legislative pension on Dec. 31, 2004, and immediately began a second legislative pension in the KERS.

Boswell will be 60 on Nov. 20. He has not started drawing his legislative pension, so he has options. If he were to start drawing his pension in November, which he can do without penalty, the pension would be figured not on his salary in the legislature but on his salary as commissioner of Agriculture. His “high-three” in that job was $53,757, which would give him a $69,880-a-year pension instead of $50,161 a year if it were based on his legislative income. Over a lifetime, his four years as ag commissioner guarantees him an extra $402,676.

But his higher pension from being Ag commissioner may not be the final job that would increase his legislative pension. Boswell is considering three options for next year: (1) a re-election bid to the state Senate; (2) a rematch with Congressman Brett Guthrie in the 2nd U.S. House District; or (3) a run for county judge-executive in Daviess County. The latter would boost Boswell’s legislative pension an estimated $1.1 million – above his standard legislative pension.

In Daviess County, the judge-executive’s annual salary is $100,548, plus an annual $3,600 stipend from the Kentucky Transportation Cabinet. The stipend is taxable income, so it’s included in the pension formula. (All 120 judge-executives receive the stipend in the same amount.)

Perhaps making the judge-executive’s race even more attractive for Boswell, the current officeholder, Reid Haire, has announced he will not seek re-election. If Boswell were to win that race and serve at least three years (it’s a four-year term), it would raise his legislative pension to $104,148 a year. He could quit after three years and still walk away with a million dollars (lifetime), added to his legislative pension. He voted for HB 299.

Lt. Gov. Daniel Mongiardo

Lt. Gov. Daniel Mongiardo, 49, was a member of the Senate in 2005 and, therefore, can draw his legislative pension – when that time comes – based on his lieutenant governor’s salary. He served seven years in the Senate, during which time his high-three salary was $33,397. When he reaches age 64, he could begin drawing his legislative pension without an early withdrawal penalty, and, based on his Senate salary his legislative pension would be $6,429 a year. However, his pension won’t be figured on his salary in the legislature, as we’ve said; it will be figured on his salary as lieutenant governor, which is $105,744.

So, being lieutenant government increases Mongiardo’s legislative pension to $20,356 a year, or an extra $232,995 lifetime total. He did not vote for or against the bill.

Frank Rasche

Ex-legislator Frank Rasche, D-Paducah, served 15 years in the House before resigning in 2008 to accept an $80,000-a-year position in the Beshear administration in the Education and Workforce Development Cabinet. That state job increases his legislative pension to $33,000 a year from $14, 841 – a gain of $18,159 a year for the rest of his life. The lifetime gain is estimated at $329,949. He voted for the bill.

Jon Draud

Ex-legislator Jon Draud served nine years in the House before resigning to become state Education commissioner at $220,000 a year. He held that job only one year, but it counts as one of his “high three” in calculating his legislative pension, and it moved his legislative pension up from $9,247 to $22,876 annually, a gain of $13,629 a year, or, over a lifetime, $172,545.

Had Draud stayed on the job three years as Education commissioner, he would have received – through his legislative pension – a bonus of $572,270. With that, his monthly pension would have jumped to $45,203. He voted against the bill.

Joe Barrows

Ex-legislator Joe Barrows, D-Versailles, missed out on more than $700,000 because he began drawing his legislative pension before he started his state job this summer in the Office of Homeland Security. Once a legislator, or ex-legislator, begins drawing his or her legislative pension, it closes the door forever on the reciprocity provision in the 2005 law for that particular legislative pension. He voted for the bill.

What if ...

What if all legislators with 20 years of service became county judge-executives?
To further reveal the magnitude of the rich benefits that legislators bestowed upon themselves through enactment of the 2005 law, Kentucky Roll Call filed open records requests with the Legislative Research Commission and obtained the taxable income for the most recent six years on all current legislators who have served 20 years or more in the legislature, or will have served 20 years at the end of next year. From the taxable income information (that’s the income the legislator reports to the IRS), we did the math and came up with each legislator’s “high three” salary (average of the highest three years), which we then used to figure the legislator’s legislative pension, based on a hypothetical scenario where he or she leaves the legislature on Dec. 31, 2010.

We expanded the hypothesis to have each of these 25 legislators run for county judge-executive in 2010 – rather than seeking re-election to the legislature. In Fayette and Jefferson counties, which have city-county consolidated governments, we replaced judge-executive in the formula with the metro mayor, and applied the formula to the legislators who live in those two counties. The mayor’s job in Lexington pays $120,574 a year; and the mayor’s job in Louisville pays $105,746.

How much would this enrich these selected legislators’ legislative pensions, if they were elected county judge-executive, or mayor if they live in Fayette or Jefferson counties? On average, it would enrich each legislators’ pension by $610,776 over the lawmakers’ lifetimes. Boswell would strike the Mother lode – an estimated $1,192,425.

The Legislative Ethics Commission said there was no violation of the ethic code when legislators voted in favor of the pension-enrichment bill and then benefited from it directly. The agency’s rationale: The opportunity applies to all members. Of course, the agency is only interpreting the ethics law as written by those who are drawing the pensions.

Frankfort Culture

Frankfort is a culture of pensions. It’s common to find people drawing two, even three government pensions. Legislators have joined the parade, and the magnitude of it on the legislative process and Kentucky politics should not be underestimated.

We don’t know if the governor is keeping a list. What we do know is, Beshear has received many requests for state jobs from members of the House and Senate – not jobs for their constituents, but for themselves. For the pensions! You see what lies ahead.

By Lowell Reese
Kentucky Roll Call
Sept. 22, 209