SENATOR C.B. EMBRY’S LEGISLATIVE UPDATE
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 quasi-governmental agencies.
The issue was how more than 100 agencies – such as regional universities, community colleges, local health departments, domestic violence shelters, child advocacy centers and other nonprofits – were going to pay for a spike in the required employer contribution rate to a Kentucky pension system. It increased by about 36 percent this summer to 84 percent of payroll. That translates to an additional $8,400 for every $10,000 in payroll spent by the nonprofits, known as quasi-governmental agencies in bureaucratic parlance.
The General Assembly’s solution was to pass House Bill 1. It extends a one-year freeze to increases in the required employer contribution rate while the quasi-governmental agencies decide whether to stay with the Kentucky Employees Retirement Systems (KERS) non-hazardous fund. Some predict the required employer contribution rate will increase to as much as 92 percent of payroll next fiscal year.
Since HB 1 contained an emergency clause, it took effect immediately upon the governor’s signature on Wednesday in the State Capitol Rotunda, a few hours after the Senate approved it by a 27-11 vote. The measure had passed the House on a 52-46 vote on Monday.
Per HB 1, quasi-governmental agencies that choose to leave the pension system will have to pay their unfunded liabilities, which are earned but yet-unfunded benefits, either in a lump sum or in installment plans. The agencies exiting must also decide whether to allow their employees hired before Jan. 1, 2014, to continue to accrue benefits in the pension or transition them to alternative retirement programs by June 30 of next year.
As echoed in the Senate chamber, there are no easy answers to this funding dilemma. There were three amendments introduced on the Senate floor not adopted by the full body. The amendments would have, among other things, continued the rate freeze so different legislation could be considered in future sessions and prevented employees hired before 2014 from being transitioned out of KERS.
The state is already providing more than $50 million in subsidies to these quasi-governmental agencies to help them pay their pension obligations. There is language in HB 1 that states the General Assembly intends to continue to provide these subsidies in future budgets.
The General Assembly still faces serious decisions in the upcoming 2020 Regular Session, where we will also discuss the state’s budget, pensions, sanctuary cities, but we will remain dedicated to finding the best legislative course of action for public employees across the Commonwealth of Kentucky.
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 email me at [email protected]. You can also review the Legislature’s work online at www.legislature.ky.gov
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Note: Senator C.B. Embry, JR (R-Morgantown) represents the 6th District including Butler, Hopkins, Muhlenberg, and Ohio Counties. He is vice chairman of Veterans, Military Affairs, & Public Protection Committee and co-chairman of the Tobacco Settlement Agreement Fund Oversight Committee. He also serves as a member of the Natural Resources and Energy Committee; the Transportation Committee, and the Budget Review Subcommittee on Education.