Pension Relief Uncertain After Kentucky Governor's Veto

Gov. Matt Bevin vetoed a bill Thursday that would provide pension relief to local governments in Kentucky and allow certain groups to stop participating in state-operated pension systems.

By Daniel Desrochers

Gov. Matt Bevin vetoed a bill Thursday that would provide pension relief to local governments in Kentucky and allow certain groups to stop participating in state-operated pension systems.

It was the provision that allowed regional universities, community colleges, health departments and others to stop participating in the Kentucky Employees Retirement System or County Employees Retirement System that caused Bevin to veto Senate Bill 362.

"In their current form, the buy-out provisions are well-intended, but provide too much risk to the solvency of both the KERS and CERS systems," Bevin said in a prepared statement. "These provisions, as currently written, will lead to cash flow issues and shift even more of a burden to future taxpayers."

Following a change to actuarial assumptions mandated by the Kentucky Retirement Systems board of trustees, local governments faced huge increase in their pension contributions -- some as high as 70 percent -- in the fiscal year that begins July 1.

To combat those increases, the bill limits increases in pension contributions for local governments in the County Employees Retirement System to 12 percent for 10 years.

For example, Lexington's merged government would have to pay an additional $10.3 million under the new assumptions, bringing its total to $29.9 million. With the cap, the merged government would only have to pay $21 million.

Despite his veto, Bevin said he supports the pension relief provision for local governments.

Kentucky has one of the worst-funded pension systems in the nation, but CERS has fared better than KERS, largely because local governments have been required to make their full pension contributions. As of last June 30, the primary CERS pension fund had 54 percent of the assets it's expected to need for future payments to retirees, compared to just 13 percent for the primary KERS pension fund for state government employees..

Bevin blamed "unrealistic and inaccurate actuarial assumptions" for CERS being less than 60 percent funded, but said the cap on pension contributions would allow local governments to budget for their increased pension payments.

"To be clear, although this provision is part of the bill I am vetoing, I support and encourage the Kentucky General Assembly to restore this provision in the remaining two days of the 2018 session," Bevin said in his veto message.

Bevin did not feel the same about the portion of the bill that allowed certain groups to opt out of KERS and CERS. Citing an actuarial analysis of the bill, Bevin said that provision could cost the KRS system $2 billion, which would result in a 6 percent to 8 percent increase in the annual required contribution to the state's pension systems.

The legislature still has the ability to override Bevin's veto in the last two days of the legislative session on April 13 and 14.

"Members of the legislature had promised an override if the governor vetoed the bill," said Bryanna Carroll, the director of governmental affairs for the Kentucky League of Cities. "Whether they override the veto or put in separate legislation, cities hope to see some type of action to ensure the phase-in when the legislature reconvenes on Friday, April 13."

(c)2018 the Lexington Herald-Leader (Lexington, Ky.)

Caroline Cournoyer is GOVERNING's senior web editor.
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