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Legislation

Kentucky lawmakers approve pension relief bill for ‘quasi’ agencies

Kentucky Capitol

Kentucky lawmakers passed a pension relief bill that would require 121 quasi-governmental agencies in the Kentucky Employees Retirement System for Non-Hazardous employees, such as state-supported universities and health departments, to leave the $2 billion retirement system if they cannot meet rising pension contribution costs.

On March 28, HB 358 passed the House on a 58-39 vote and the Senate in a 26-11 vote, but Gov. Matt Bevin has yet to sign the bill. The bill would take effect immediately upon his signature because it has an emergency clause, Jim Hannah, a public information officer for the Kentucky Legislative Research Commission, said in an email.

If Mr. Bevin refuses to act, the bill becomes law automatically. But if he vetoes the bill, Legislature would not be able to override the veto because the bill was passed too late in the session, Mr. Hannah said.

A spokeswoman for Mr. Bevin's office did not respond for comment.

Under HB 358, "quasi-governmental agencies," including public health departments, regional mental health departments and rape crisis centers, would receive another year of relief, keeping the employer contribution rates at 49%. The agencies also received a one-year contribution waiver for the current year, which was approved in legislation passed last year, according to David Eager, executive director of the $18 billion Kentucky Retirement Systems, Frankfort, which oversees the KERS Non-Hazardous plan.

If the bill becomes law, it would result in KERS Non-Hazardous receiving $121 million less in contributions from exiting entities for the next fiscal year, which ends in June 2020, Mr. Eager said.

The bill moves forward as many of the "quasi" agencies impacted by the bill, particularly regional mental health departments, struggle to remain open and fear an increased pension contribution rate would cause them to either close down or substantially scale back their services, he explained.

"Many (of these entities) are in difficult straits even if we did nothing. ... There is no good option here," he added. "Every year we (extend the waiver), it throws another burden on other employees in the system."

The KERS Non-Hazardous plan, which has 122,788 participants, had $15.5 billion in liabilities as of June 30, Mr. Eager said.

While the quasi-governmental entities would be required to leave KERS under HB 358, affected agencies would also need to offer a defined contribution plan with a mandatory 5% contribution rate for employees. The entities would also be able to opt back into KERS but must pay the full actuarially required contribution at that point in time. The contribution rate is currently around 83%, which most of the entities say they couldn't afford, Mr. Eager noted.

To cease participation in KERS, entities would have two options to buy themselves out of the retirement system as of June 30, 2020: Pay the actuarial cost as a lump-sum payment at a 4.5% discount rate, or pay the actuarial cost in annual installment payments.