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Higdon: General Assembly action provides pension relief for quasi-state agencies

By JIMMY HIGDON
14th District State Senator

Friday, July 26, 2019 — The anticipated special session to tackle public pensions has come to a close, and the General Assembly has passed a new plan to provide relief for over 100 quasi-governmental agencies—including local health departments, regional universities, domestic violence shelters, mental health providers, and others.

SEN. JIMMY HIGDON

Everyone can agree that Kentucky has a real pension problem. Prior to this five-day session, quasi-governmental agencies allowed into the Kentucky Employees Retirement System (KERS), were facing dramatically high pension costs.

These agencies provide critical services to citizens across our commonwealth. While inaction is never an option, the legislature went to work to construct a plan that will help place these public employees on the path to fiscal soundness.

The new plan, officially passed as House Bill 1, is a legislative attempt to get a handle on the statewide pension crisis. HB 1 extends a one-year freeze to increases in the required employer contribution rate providing flexibility to those quasi-governmental agencies by allowing time to decide which option best meets the needs of its organization.

Starting April 1, 2020, each agency will opt in to one of the five alternatives:

  • Stay in the KERS plan
  • Keep Tier 1 and Tier 2 employees in the system only
  • Provide a lump sum payment to exit the system
  • Pay with installments to exit the system
  • Fully exit with all accrued benefits guaranteed

Final selection is not required by each entity until April 30, 2020, which allows the legislature time to make any necessary changes during the 2020 Regular Session.

To clarify, this legislation protects the KERS nonhazardous plan and does not further contribute to the underfunding of the pension system. Furthermore, no current benefit structure is changed, and any benefits already earned by employees will be not be affected. Moreover, HB 1 does not affect current retirees.

HB 1 was approved by a 27-11 vote in the Senate after passing by a vote of 52-46 in the House. The legislation went into immediate effect upon Governor Bevin’s signature Wednesday afternoon.

Dave Eager, executive director of KERS, spoke in support of the bill.

“Compared to the current statues, HB 1 allows the 118 quasi agencies three more options to exit the KERS Nonhazardous system. And it is estimated that their collective costs to exit will be over $800 million less than current provisions.”

Our state’s pension crisis is real, and we simply cannot afford to kick the can down the road. While there has been a history of secrecy and mismanagement by past pension administrators and their investment firms, it would be irresponsible to dismiss any individual factor, and point solely to another for the current state of our pension systems.

As a legislative body, it is our job to stabilize the system, and HB 1 is an attempt to do so. The General Assembly still faces serious budget and funding decisions in the upcoming 2020 Regular Session, but we will remain dedicated to finding the best legislative course of action for public employees across the Commonwealth of Kentucky.

Thank you for your questions and concerns. It is an honor to serve you in Frankfort.

If you have any questions or comments about these issues or any other public policy issue, please call me toll-free at 1-800-372-7181 or e-mail me at Jimmy.Higdon@LRC.ky.gov. You can also review the Legislature’s work online at www.legislature.ky.gov.

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