Address future participation of nonprofit private agencies
FRANKFORT, Ky. (June 26, 2014) — It appears likely that legislation will be filed during the 2015 legislative session to address future participation of nonprofit private agencies in the state’s public pension system, according to discussions in a legislative committee meeting yesterday.
Committee member Rep. Brad Montell (R-Shelbyville) called for bipartisan legislation in the General Assembly’s State Government Committee following a report from Kentucky Retirement Systems about Seven Counties Services, Inc. — a non-stock, nonprofit mental health/mental retardation services agency under contract with the Commonwealth of Kentucky to serve the Louisville area and, at least for now, a member of the Kentucky Employee Retirement System non-hazardous plan under KRS. A Louisville-based U.S. bankruptcy judge ruled last month that the agency, which filed a Chapter 11 bankruptcy action last year to avoid payment to KERS, is not a government agency under federal bankruptcy law and could indeed reject its contract with KRS and leave the retirement system.
KRS is now filing an appeal to that ruling in the U.S. 6th Circuit Court of Appeals. If the pension system loses, KRS Executive Director Bill Thielen said Seven Counties will be able to leave the system without paying approximately $90 million toward the KRS’ unfunded actuarial liability. That unfunded liability now totals around $18 billion, approximately $8.5 billion of which is tagged to the KERS non-hazardous plan.
“I can’t help but believe that had we passed legislation that addressed this in a proper way that we would be in much better standing in the courts today,” said Montell, who suggested lawmakers pre-file a bill for consideration and passage early in the 2015 session to protect the KRS moving forward.
If KRS loses its appeal and Seven Counties leaves the system with its $90 million, that cost will have to be picked up by other employers in the KERS non-hazardous system, said Thielen, adding that KRS actuaries believe the contribution rate for those other employers would rise 2.5 percent over a 20-year period if just Seven Counties leaves. If all mental health/mental retardation agencies in the system were to follow Seven Counties’ lead, actuaries estimate the contribution rate over 20 years would ratchet up around 6.5 percent, amounting to around $2.4 billion in additional cost to employers in the system, Thielan said.
Committee member Sen. Chris McDaniel mentioned that the KRS spoke in support of legislation last session that would have allowed quasi-government agencies to opt out of the KRS while paying their actuarial cost. That legislation, which passed the Senate unanimously but stalled in the House, was Senate Bill 216 sponsored by McDaniel (R-Taylor Mill). Thielen said many states do allow non-government agencies to opt out of their public pension systems but at the same time, they require that any unpaid obligations to the retirement fund be paid.
Committee Co-Chair Brent Yonts (D-Greenville) said he plans to form a work group to research the involvement of nonprofit, non-stock private agencies in the state retirement system over the next few months, with the end goal being legislation drafted to address the issue in time for the start of the 2015 session in January. Yonts said the committee will also look more closely in its October meeting at agency withdraw from the KRS, along with the issue of public pension “spiking” that has allowed some KRS members to drive up their retirement pay through large bonuses or other forms of compensation added to their final salary.
As for the Seven Counties case, Thielen said it could take 18 months to 2 years to appeal the case.