Kentucky Tries to Head Off Looming Pension Crisis

Gov. Matt Bevin asks special session of legislature this time to revamp quasi-government agencies’ retirement plans.

Kentucky’s Gov. Matt Bevin got his wish, as a special session for the General Assembly to determine a fix for the state’s looming pension crisis will happen Friday morning.

Bevin’s office announced the news Monday. His administration has been trying to get a special session in order since the end of the year’s regular session, which like in 2018, failed to pass anything on a pension reform.

Last session, the governor introduced two proposals designed to help Kentucky’s retirement funds. The first was to shake up the Teacher Retirement System’s board with his own appointees. The other would have moved future university employees into a defined contribution plan and freeze the contribution rate of Kentucky’s quasi-governmental agencies for a year, which was half of a similar bill that passed, but was soon vetoed by Bevin. The governor then resubmitted his version, which tacked on the DC clause.

Quasi-agencies include regional universities, health departments, domestic violence centers, and community health centers. After July 1, members’ contribution rates to the Kentucky Retirement Systems, the institution responsible for their pensions, skyrocketed to a near 70% increase, to 83% of payroll from 49%.

The $12.3 billion fund had rapidly been making large cuts to its assumed rate of return and adjusted contribution rates in a similar fashion over the past several years. New mortality tables created a further contribution increase to the levels made this month. If nothing happens by August 10, the pension costs will become delinquent and the fund is on its own until at least next session.

The pension plan’s board would then decide how large of a fine they would have to pay to cover the delinquent plan, while still being on the hook for paying the benefits. The newfound budget constraints could lead to agencies laying off staff and possibly closing their doors.

Bevin’s latest proposal is to freeze the pension costs until April and give the quasi-agencies the option to leave the retirement system. That will be the subject of the special session, expected to last through Wednesday. If all goes well for Bevin, a bill could wind up on his desk as early as next week.

“The proposal  [the governor’s administration] put through created this mess because of all of the other things they incorporated rather than just setting a rate freeze for the quasis,” Bridget Early, executive director of the National Public Pension Coalition, told CIO. “It’s unfortunate when this is how policy—particularly pension policy that impacts the livelihoods of the retirees—is being decided: in these shotgun moments that do not lend themselves to transparency or a conversation about how to address the root of the issue.”

The Kentucky Retirement System houses the retirement assets for five retirement plans, the two Kentucky Employees Retirement Systems (hazardous and non-hazardous), the State Police Retirement System, and the two County Employees Retirement Systems (also hazardous and non-hazardous). The one that affects the agencies is the non-hazardous variant of the ERS, which is about 14% funded, according to Brian O’Neill, a Louisville firefighter and spokesperson for activist group the Kentucky Public Pension Coalition.

The association opposes Bevin’s concept.

“It’s not good,” O’Neill told CIO, suggesting it also encourages and incentivizes those organizations (quasi-agencies) to mistreat their employees while giving them a way to get out of the retirement system. “Now you’ve got fewer people actually paying into the system, which harms the system as a whole.”

O’Neill also said the 401(k)-like solution also creates opportunity for those organizations to freeze the benefit package for their employees. This, he said, would continue to harm the pension system as no members would be paying into the KRS.

The Kentucky Retirement System is 39.3% funded, according to its most recent annual report.


Related Stories:

Kentucky Bill Would Allow Institutions to Leave Troubled Retirement System

Kentucky Left to Try, Try Again on Pension Overhaul

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