Health departments, regional mental-health centers, other entities get a pension fix, but at a cost to some employees’ pensions

By Al Cross Published March 29, 2019 HEALTH POLICY

Teachers filled the Senate gallery. (Herald-Leader photo by Matt Goins)
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As it closed up shop, the legislature gave local health departments, regional mental-health centers and other government-related agencies another reprieve from pension costs that threaten their future, but at a cost to some employees’ pensions.

“Under the plan, the organizations can remain in the Kentucky Retirement Systems and begin paying a staggering 84 percent of their payroll as their share of pension contributions, which is what the rest of state government paid this year,” John Cheves reports for the Lexington Herald-Leader. “Or they can leave KRS by July 2020 and pay off their pension liabilities, either with one lump sum or starting at their current rate of 49 percent of payroll and gradually increasing by 1.5 percent a year” until the liability is funded.

In organizations quitting KRS, employees hired since 2014, and all new hires, “will be enrolled in defined-contribution plans” like 401(k)s, Cheves writes. “Longer-term employees can choose whether to remain in KRS with their defined-benefits pensions or switch to a defined-contribution plan. But if they remain in KRS, their employer’s liabilities will increase.

The revised House Bill 358 “would allow most employees of the affected groups to continue accruing future retirement benefits in the current pension plan,” unlike the Senate’s earlier version of the bill, which would have moved most employees to “a new 401(k)-like plan,” Tom Loftus reports for the Louisville Courier Journal. “Any group that leaves the pension plan or is more than 30 days late in making payments” would be moved into a 401(k)-like plan, “and pension checks to retirees from such groups could be suspended until the group gets current on its payments.”

Gov. Matt Bevin had told lawmakers that he would sign the Senate’s earlier version into law, but would reject any approach he thought would unnecessarily harm the badly underfunded pension plan. “Sen. Chris McDaniel, the Taylor Mill Republican who co-chaired the committee that worked out the compromise, said he hoped that Bevin would sign the bill into law, but did not know whether he would,” Loftus reports. Because Thursday night was the last one of the session, “Bevin could veto it and the legislature would have no ability to override the veto.”

The bill passed largely along party lines, 26-11 in the Senate shortly before 8:30 p.m. and 58-39 in the House at 11:11 p.m.

Health departments, regional mental health agencies, domestic violence shelters, rape crisis centers and other groups warmed that an increase in their pension contributions to 84 percent of payroll, from the current 49 percent, “would force dramatic cuts in services,” Lofts writes. “Health departments serving 64 counties would become insolvent and likely close their doors within two years.”

But the Senate did not want to merely grant relief because that would have robbed the pension plan “of money it anticipates and desperately needs. The plan is considered the worst-funded public pension plan in America with only 13 percent of the assets on hand needed to cover future benefits,” Loftus notes. “The compromise bill is projected to cost that plan $799 million — forcing what is sure to be a big hike in future contributions from the remaining employer in that plan: state government.”

“There’s nothing but bad choices involved in this,” McDaniel told reporters Thursday night. “And this (the compromise bill) is the best of all of those.”

Cheves writes, “Critics of the bill complained that it was a complex measure being foisted on them in the final hours of the legislature, and that given the huge costs involved, some quasi-public agencies might not be able to afford either option available. “This doesn’t help the quasis,” said Sen. Robin Webb, D-Grayson. “It doesn’t help them. It’s a path to insolvency. It’s a path to bankruptcy.”