As pension-reform talk in this government town slowly rose to a din, the billboard appeared. Unmistakable from the north side of the Capital Avenue bridge are the letters “#freeCERS,” sandwiched between the phrases “local pensions” and “local control.”
The #freeCERS movement has been on simmer ever since Gov. Matt Bevin asked Public Pension Oversight Board Chair Sen. Joe Bowen, R-Owensboro, to table a bill in March that would have uncoupled the better-funded County Employees Retirement System (CERS) from its poorer brethren in the Kentucky Retirement Systems (KRS), which administers the pensions and health care plans for its nearly 365,000 local government, state government and State Police members. The matter would have to wait until a possible special session later in the year to address pension reform.
Later in the year has now arrived. And with it have come renewed calls from local government entities to divorce themselves from KRS. In the past week, cities and towns ranging from the City of Owensboro (population 59,273) to the City of Calhoun (population 757) have passed resolutions in support of separation, as the Kentucky League of Cities, which is leading the charge, has cheerfully tweeted with the hashtag “#freeCERS.”
“We’re right around 100,” said KLC Governmental Affairs Manager Bryanna Carroll, who is keeping a rough count of the local government entities gung-ho about self-determination.
Notably absent from Carroll’s list, however, are Franklin County entities.
“To be honest with you, I can see both sides of it,” Franklin County Judge-Executive Huston Wells told The State Journal.
Wells finds himself in the precarious position of having to look after the best interests of Franklin County Fiscal Court, which last year paid $2.2 million into the 59-percent-funded CERS Non-Hazardous pension fund, while pleasing his constituents, many of whom are retired state government employees drawing from the 16-percent-funded Kentucky Employees Retirement System (KERS) Non-Hazardous pension fund.
KRS, which charges administration fees to the pension funds proportional to membership, has some 229,000 CERS members. They constitute 62.9 percent of KRS’ total membership, while accounting for 73.6 percent of KRS’ total assets, according to a State Journal analysis of KRS’ most recent financial report.
Because the fees charged by outside investment managers generally decrease as assets under management grow — for example, a manager may charge a 0.5 percent fee for the first $100 million and half that for the next $100 million — separation would likely mean more money spent on management fees overall, according to KRS interim Executive Director David Eager.
Consulting firm PFM, which announced its pension reform recommendations last month, estimates that separation of CERS could add $1.7 million in investment management fees, not including the $3.6 million in redundant administrative costs that KRS says would be incurred, according to PFM’s report.
“There’s a tremendous amount of analysis that needs to be done,” said Eager of the costs involved in separation. “Everything from carryover of liabilities, to the cost of running two systems versus running one, to unwinding investments that are locked up for years — it goes on and on and on.”
Based on the economies of scale that KRS would lose, however, a divorce would likely be more painful for the remaining state government members than for CERS, which has $10.9 billion in pension and insurance assets compared to $3.9 billion for KERS and State Police Retirement System (SPRS).
“The last thing that I would want from our standpoint in Frankfort and Franklin County is to take out CERS and make KERS go under,” said Wells.
Likewise, state government retiree advocate Jim Carroll, president of Kentucky Government Retirees, questions what benefit, if any, KERS members would derive from helping CERS gain independence from KRS. Instead, Carroll is intrigued by PFM’s proposal to form a common investment committee that would handle investment matters for all of Kentucky’s public pension systems, including those of teachers, legislators and judges.
“Why wouldn’t you go out into the marketplace with their combined buying power?” asked Carroll.
In the view of the League of Cities’ Bryanna Carroll, local government entities simply don’t want to be subject to the whims of changing administrations. Out of the 17 voting members of the KRS Board of Trustees, 11 are now appointed by the governor.
Moreover, Carroll sees CERS as different from the other public pension trust funds since contributions are appropriated directly from the state budget whereas contributions to CERS come via the local entities.
“We outsourced and paid the state to provide the services,” said Carroll, referring to KRS’ administration of the CERS funds. “We have not been satisfied with those and want to take them in-house.”