Exclusive: Kentucky Retirement’s Executive Director Says Proposed Board Split Will Increase Taxpayer Burden

Legislation that would see the Kentucky Retirement Systems’ (KRS) board split into three separate entities has elicited comment on its potential consequences for taxpayers and operational inefficiencies from the pension’s executive director, David Eager.

The bill was originated from concerns regarding the board’s supposed lack of representation for the County Employees’ Retirement System (CERS), the leaders of which expressed dissatisfaction with the current state of affairs and are pushing for a bill (HB 484) that would establish a separate board for the system. The legislation on Monday passed through the state’s House Local Government Committee and will now be sent to the full House.

The two respective KRS and CERS boards would report to an entity that would be formed as a result of the bill, the Kentucky Public Pension Authority, which would provide administrative and personnel needs necessitated by the two boards.

Eager testified to the potential complexity and cost the legislation could bring about if passed.

“As the executive director of the Kentucky Retirement Systems, I cannot speak to policy issues of a bill, but I am required to address the cost and administrative impact of proposed bills,” Eager told CIO.

“At KRS we try to follow the principle of Occam’s Razor which is, ‘the best solution is usually the simplest one,’” Eager said. “HB 484 increases the complexity of managing the five main retirement and health care plans. Currently, KRS’s cost of operation is only slightly above its peer public fund universe in spite of the fact that we are much more complex than the average system and cover five separate plans and health care plans, and not just retirement plans.

“Under HB 484, KRS will now be required to serve three boards, not one. That could include preparing for over 70 board and committee meetings versus about 30 today. The new two systems may result in two different benefit structures and retiree health care providers, among others. There will be additional staff required.”

“Our costs will no doubt increase, which will ultimately have to be borne by taxpayers,” he added.

Eager declined to provide a delegated position of support or opposition to the bill.

Advocates for the bill, including members of the organization Kentucky League of Cities (KLC), said that passage of the bill is in the best interest of CERS.

“This bill would create a new CERS Board of Trustees that is free of political influence regardless of future administrations while also protecting the state’s pension systems and limiting duplication of services,” KLC’s Bryanna Carroll said to a KRS subcommittee in February.

Carroll stated that CERS has 76% of the assets and makes up 64% of the KRS membership, however it only has 35% of the seats on the KRS board, 14% on the actuarial subcommittee, and 11% on the investment committee.

KERS is approximately 13% funded and is regarded as one of the lowest-funded state pension plans in the United States. Spectrum News 1 reported last October that CERS claims to be approximately 60% funded.

Legislators in the state pushed a bill that would see their benefits switch to the KRS in order to “align their interests” with that of their constituents under the ailing pension system.