Kentucky lawmakers have advanced a bill that would allow regional universities and “quasi” state agencies like local health departments, mental health departments and rape crisis centers to exit the state’s pension systems, ultimately increasing the unfunded status of the retirement fund for most state workers.
The bill would also reduce retirement benefits for some current state employees and could drastically affect retirees if agencies don’t promptly make payments to the state.
The measure comes as the agencies are facing a massive increase in the amount of money they have to pay in to the pension system, which some agencies say will bankrupt them.
Starting July 1 their contribution rate is set to increase from about 49 percent of every employees’ salary to about 84 percent.
But under House Bill 358, the agencies will be allowed to exit the pension system and pay the state a portion of their share of the state’s pension debt.
Sen. Chris McDaniel is a Republican from Latonia and one of the measure’s main architects. He said that the state needs to do something, but there are “no good solutions.”
“There’s nothing but bad choices involved with this and this is the best of all of those,” McDaniel said. “Because the options are bad for the general fund, the taxpayer, for the delivery of services and we’re trying our best to strike the balance between all three of those.”
After being unveiled late in the last day of this year’s legislative session, the bill has passed out of the state Senate and awaits final passage in the House.
Under the plan advanced Thursday, unless the agencies can make those higher payments, they will be required to exit the pension system and make annual payments to the state that will slowly increase from an average of how much they have paid the state over the last years, plus interest.
If agencies chose to exit the system, the legislation would enroll employees hired since 2014 and all future employees in 401k-style retirement plans. Employees hired before 2014 would be allowed to keep their pensions if they want.
The bill also allows the state to take over agencies if they are 30 days late making pension payments, restructure their finances and drastically reduce the retirement benefits of their employees and retirees, even completely halting pension checks.
Sen. Morgan McGarvey, a Democrat from Louisville, said he was concerned about the provision allowing the state to suspend pension checks.
“Imagine someone who’s sitting at home has paid every cent that they’ve been asked to pay in, and because an entity they used to work for couldn’t make that payment, they’re no longer going to get their pensions,” McGarvey said.
The measure also raises concerns about how it would affect the pension fund for most state workers, which is currently only 13 percent funded.
Because the universities and agencies would be paying the state back at a discount, it will cost the state about $799 million, adding to Kentucky’s estimated $37 billion pension debt.
Jim Carroll, president of the Kentucky Government Retirees advocacy group, criticized lawmakers for unveiling the final version of the legislation in the final hours of this year’s legislative session.
“We are outraged that the General Assembly has once again cobbled together a substantive pension bill as the session draws to a close. Consequently, stakeholders will not have an opportunity to examine the details of the bill or read its actuarial analysis. This is governance at its worst,” Carroll said.