A bipartisan Metro Council resolution was filed this week that would call for the pension plan for county workers across the state to fully separate from the troubled Kentucky Retirement Systems (KRS) that it currently resides under — joining the recommendations of nearly three dozen other cities and a new coalition of 23 government agencies led by the Kentucky League of Cities.
This proposal comes amid a time of great upheaval and confusion regarding public pension plans in Kentucky, which — factored in together — rank among the most underfunded in the country, with an unfunded liability of at least $33 billion.
The pensions of 230,000 city and county employees and retirees are covered by the County Employees Retirement System (CERS), with an assets-to-liabilities funding ratio of roughly 60 percent, but this plan is housed within the Kentucky Retirement Systems, which also contains a plan for state workers that is 16 percent funded and in serious danger of insolvency within the next five years.
Gov. Matt Bevin is expected to convene a special session of the Kentucky General Assembly at some point this fall to tackle the overall pension crisis, but most legislators are still in the dark about what that legislation would look like. However, the new coalition led by the Kentucky League of Cities (KLC) is pushing heavily for a reform option that over 30 cities across the state have already called for: divorcing CERS from KRS, and letting that pension fund for local government workers be operated independently — and not be drug down with it into insolvency.
The bipartisan resolution filed within Metro Council this week already has 11 co-sponsors — led by Councilman Bill Hollander, D-9, and Councilman Robin Engel, R-22 — and exactly mirrors the suggested legislation offered by the KLC, stating Metro Council’s support for the separation.
The resolution claims that while KRS contains the worst-funded pension plan in the country — the Kentucky Employees Retirement System (KERS) for non-hazardous state workers — the funding ratio of CERS has actually increased in recent years to 62 percent. It also states that while CERS has $12 billion in assets — 73 percent of total KRS assets — it only has six representatives on the 17-member KRS board of trustees.
In addition to CERS having a large majority of KRS assets and a minority of board representation, the resolution goes on to state that administrative costs for KRS have increased 245 percent since 2000, with CERS paying 63 percent of those costs.
Adding that the separation of CERS would create a new nine-member board with the sole responsibility of managing the fund’s assets, it states that this “would mean local control of local pensions and would ensure the needs of (CERS) are met so it can continue its current path of growth for years to come.”
Lead co-sponsor Hollander tells IL that while the resolution is housed in the council’s intergovernmental affairs committee, it may be heard by a joint meeting of the budget committee on Sept. 21, when Bryanna Carroll of KLC is scheduled to speak on the merits of the divorce.
Carroll — the governmental affairs manager of KLC — held a press conference this week on behalf of their 23-member CERS coalition, stating that while many city workers and retirees are fearful the legislature will significantly cut their benefits in this fall’s special session due to the crisis within KRS, this would not be necessary if they just cut CERS loose.
“The County Employees Retirement System is not in peril,” said Carroll. “It’s not facing insolvency. In fact, it’s on an upward trajectory of growth. So, making unnecessary changes to the CERS structure or benefits creates unnecessary risks for our members.”
Though city and county governments around the state have made full employer contributions to CERS over the past 15 years, in 2003, the Kentucky General Assembly began a long trend of falling well short of the actuarially recommended contribution to KERS, diverting those funds to other budget priorities. Despite the full CERS payments, their unfunded liabilities grow along with that of KERS, leading many to believe that KRS was co-mingling funds between the two plans and making risky investments that depleted CERS assets.
The CERS coalition states that its funding ratio reversed a strong downward trend following the passage of legislation in 2013 that created a hybrid plan for new hires, and would be able to reach full funding in the future without cuts to benefits if it is free to manage its own investments.
Senate Bill 226 from this year’s session of the General Assembly proposed to allow such a CERS separation and was passed unanimously in a Senate committee, until its lead Republican sponsor and Gov. Bevin announced that the legislation would be tabled in order to be considered in a special session on pensions later this year.
While SB 226 had widespread Republican support in the legislature, Bevin has not fully endorsed the separation of CERS and even pushed back against some of the coalition’s talking points this week. The governor’s spokeswoman stated after Carroll’s press conference that CERS is actually “in very week condition, requiring serious discussion about how to save it. Now is the moment all groups should work together to ensure retirement security for current and future public employees and retirees.”
Some critics of separating CERS have stated that this would only hasten the insolvency of the plans that are left with KRS, which include 130,000 state workers and retirees and roughly 2,500 state police troopers.
At a conference of government workers on Thursday, Bevin said he appreciates the desire of those who want to separate CERS and would consider that option, but once again said that CERS was not actually on sound financial footing and was only healthy compared to the hemorrhaging KERS plan.
Bevin also said that former KRS executive director Bill Thielen “should be in jail” for mismanaging its assets.
While Bevin initially suggested early this year that a special session dealing with pensions would also involve passing a tax reform bill that raised additional revenue, he backed away from that plan this summer, saying the special session now expected in October will not deal with taxes, which he pledged not to increase.
Groups representing both state and local government workers have feared that this means their retirement benefits will be cut dramatically.
On Thursday, Republican House Speaker Jeff Hoover said the entire state House would convene for a closed meeting on Tuesday in order to discuss pensions, while Republican Senate President Robert Stivers said the caucuses of each party may have their own meetings on the subject.
The House meeting will happen a day after a consulting firm contracted by the state issues a much-anticipated report analyzing the financial status of Kentucky’s pension system.
Several Republican legislators have told IL they remain supportive of the effort to separate CERS from KRS, but have no idea if the governor will push for legislation to do that in the upcoming session.
The CERS coalition led by KLC includes the following groups:
- Kentucky League of Cities
- Kentucky Professional Firefighters IAFF
- Kentucky Association of Counties
- Kentucky School Boards Association
- Kentucky Professional Firefighters Association
- Kentucky Association of Chiefs of Police
- Kentucky Fraternal Order of Police
- Kentucky Magistrates and Commissioners Association
- Kentucky County Judge/Executive Association
- Kentucky Sheriff’s Association
- Kentucky Association of Circuit Court Clerks
- Kentucky Coroner’s Association
- Kentucky Jailers Association
- Kentucky Black Caucus of Local Elected Officials
- Kentucky City/County Management Association
- Kentucky County Clerks Association
- Kentucky Government Finance Officers Association
- Kentucky Municipal Clerks Association
- Kentucky Occupational License Association
- Kentucky Recreation and Park Society
- Municipal Attorneys Association of Kentucky
- Kentucky Association of Fire Chiefs
- Kentucky Education Association