Herald-Leader Editorial

Appeal ruling on pension system; Agency departure would undermine funding

June 6, 2014 

Appealing a judge's ruling that would allow Seven Counties Services to withdraw from Kentucky Retirement Systems ought to be a no-brainer for officials of the troubled pension program.

If the ruling goes unchallenged, dozens of other quasi-governmental organizations could follow the Louisville-area nonprofit mental health agency's lead in trying to avoid rising pension costs by filing for Chapter 11 bankruptcy.

That would exacerbate the problems at KRS, which already has an unfunded liability in excess of $17 billion. An exodus also would undermine legislative efforts to strengthen the system.

And in regard to Seven Counties' pension obligations, there are valid arguments to be made that U.S. Bankruptcy Judge Joan A. Lloyd erred in saying it is a private corporation, instead of a government entity, and therefore can proceed with its bankruptcy.

The most basic of those arguments is the fact Seven Counties gets almost all of its funding from state and federal governments. Without those public dollars, Seven Counties wouldn't exist.

But there are other arguments to be found in the law governing the state pension plan.

To join the state retirement system, a quasi-governmental agency must submit a written request with justification. If the request is approved, the agency joins the system by virtue of an executive order issued by the governor.

For the retirement system's purposes, state law defines "department" as "any state department or board or agency participating in the system in accordance with appropriate executive order ... notwithstanding whether said body, entity or instrumentality is an integral part of state government."

State law also says, "Once a department participates it shall continue to participate as long as it remains qualified. Any position initially required to participate ... shall continue to participate as long as the position exists."

Seven Counties wasn't forced into the state pension plan. It had to ask for admission. Once it got in, it became subject to the system's rules.

Allowing an agency almost exclusively funded by public dollars to avoid compliance with those rules now by filing for Chapter 11 bankruptcy doesn't serve justice, and certainly doesn't serve common sense.

Arguably, too, it doesn't serve the interests of Seven Counties' employees who have contributed to the state pension plan in the past but are not yet vested in it.

State law says, "When membership (in the retirement system) ceases, except in the case of retirement, the member shall thereafter lose all right to any retirement allowance or benefits ... arising from service prior to the date of such cessation of membership."

Considering the potential consequences, KRS has little option but to appeal the ruling. Since the particular pension plan that would be affected by this ruling covers most employees of the executive and legislative branches of state government, the appeal deserves strong support from those quarters as well.

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