Legislature approves relief bill for regional universities, health departments, service agencies

Published 7:46 pm Monday, July 29, 2019

By Adam Bowling


As many of you know, the Kentucky General Assembly was called into special session by the Governor last Friday, July 19. We met for five days, approving legislation aimed at providing relief to quasi-governmental agencies and regional universities – agencies that faced crippling increases in their retirement contributions.

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Before I begin, I want to stress that the changes we enacted this week only apply to the participation of quasi-governmental agencies and regional universities – independent organizations that are not directly part of state government. They have their own leadership, often in the form of boards of directors. Those leaders determine the agency’s budget, which programs they offer and personnel issues. They are not accountable to the state, they only participate in the retirement plan. I have had some constituents contact me that have been told this has to do with the Kentucky Teacher’s Retirement System or the County Employees Retirement System – it does not now and it will not in the future. While all share the burden of failing retirement systems, the situations are specific to each entity and will need to be addressed in different ways.

When quasi-governmental agencies and regional universities were allowed into the KERS, their initial pension investment was around six percent of their payroll costs. Those costs have risen dramatically and were temporarily locked in at 49 percent by the 2018 General Assembly, with the goal of giving these agencies and universities time to come up with a solution. That freeze expired at the end of the last fiscal year and as of July 1, the agencies and universities are expected to pay approximately 84 percent of payroll. To really understand what that means, consider that if someone makes $35,000 a year, their employer is going to have to contribute $29,400 towards her retirement. That is almost equal to another full-time position. The 84 percent is also the rate that the state pays for each of its current employees.

While the legislature approved legislation earlier this year that was supported by the agencies, universities and many employee representatives, the Governor vetoed it in favor of a similar proposal he put before us. After almost three months of studying the issue and working with the stakeholders, we approved the Governor’s plan as HB 1 and he signed it into law.

Briefly, the most important provisions of the bill include another one year freeze of their contribution rate, an emergency clause that makes the bill take effect immediately and a delay until April 1, 2020 for the agencies to act under the bill’s terms.

The bill provides immediate relief for quasi-agencies and provides time for employers to decide what is best for their employees and those they serve. No employer is forced to leave the pension system, nor are they forced to move their employees out of the pension system. However, HB 1 does provide a way forward to financial solvency through five options, including:

• Remaining in the plan and paying their full share of the contribution;

• Making a lump sum payment;

• Paying in installments;

• Keeping Tier One and Tier Two employees in the system;

• Fully exiting with all accrued benefits guaranteed.

I also want to stress that, while we acted quickly to provide relief to these agencies, the April 1, 2020 date also allows the legislature time to make any necessary changes during the 2020 Regular Session.

The bill has some important long term provisions that should ensure that we can deliver on the promises made to employees. For example, the plan utilizes realistic payroll assumptions and investment returns. And, it does not further contribute to the underfunding of the pension system. Also, benefits already earned by employees will not be affected.

This issue is as complex as it is important, and the quasi-governmental and regional university is only a small part of the overall pension crisis facing our state. Kentucky’s public pensions are the worst in our nation after decades of mismanagement and underfunding.

I am committed to providing relief from the crippling increase in contributions for our quasi-governmental agencies and regional universities, so that they may continue to offer valuable services to our communities.

If you would like to connect with me over any issue you are passionate about, please reach out to me. I can be reached here at home anytime, or through the toll-free message line in Frankfort at 1-800-372-7181. If you would like more information, or to e-mail me, please visit the legislature’s website at www.legislature.ky.gov. You can also share your thoughts with me on my Facebook page or on Twitter @ABowlingKY.