The number of people guaranteed a lifetime pension from the underfunded Kentucky Retirement Systems has jumped 39 percent since 2000 to 318,981 — the equivalent of one in every 10 adult Kentuckians.
Many thousands of those people — nobody knows exactly how many — aren't state or local government employees, for whom KRS was established in the 1950s.
They work for "quasi-public" entities, including medical providers, not-for-profit law firms, social service agencies, national and state advocacy organizations, entertainment venues, the state's largest credit union and a laundry that washes hospital linens.
These outside employers have some type of relationship with a government — they might have been created by a government, for example, or they are paid to perform work for a government — so state law allows them to join the $13 billion KRS if they want to.
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Many want to. The employers say a guaranteed pension, which usually comes with state medical coverage, is more attractive than defined-contributions plans, such as 401(k) accounts, that dominate in private workplaces.
In defined-contribution plans, workers must save enough for their retirement or run out of money. With public pensions, which sometimes can begin after just 27 years of work, if there is a shortfall, taxpayers make up the difference and keep the checks coming.
"It's a very good recruiting tool for us. We can't compete with a big law firm when it comes to salary, but now we can offer you a generous pension," said Jonathan Picklesimer, interim executive director of Appalachian Research and Defense Fund Inc., a law firm for the poor based in Prestonsburg.
Like many outside employers, Appalred is a nonprofit corporation led by its own board of directors, not by elected officials.
The majority of its $4.5 million in annual revenue comes from Congress, with smaller sums from state, local and private sources. This year, it successfully argued that it's not a "public agency" and therefore should be exempt from the Kentucky Open Records Act.
But in 2001, Appalred said it was entitled to public pensions from KRS, and KRS agreed. Until then, its employees paid into defined-contribution retirement accounts, Picklesimer said. Today, Appalred has 120 people enrolled in KRS.
"We're a not-for-profit agency that provides fundamental services for the financially challenged," Picklesimer explained. "We felt we were very similar to some of the social-service agencies already enrolled in KRS."
The problem with letting outside employers into KRS is that taxpayers already owe billions of dollars just to cover government workers' pensions, said Sen. Damon Thayer, R-Georgetown, chairman of the Senate State and Local Government Committee.
KRS' various pension funds don't hold enough money to meet their future obligations to retirees. One fund serving 114,904 state workers only has 38 percent of the money it is projected to need, according to KRS.
"Every new employee we allow into the system increases the unfunded liability of the system," Thayer said. "The more groups we allow in, the more the costs go up, and the greater the problem we're facing down the road."
Lawmakers must limit who gets public pensions, Thayer said. This year, he co-sponsored a bill to let public airport boards create corporations that could improve airport facilities. The senators added a line explicitly to state that these corporations could not join KRS. Their employees would need to make their own retirement plans.
"We're going to have to do more of that," Thayer said.
However, for all the debate in Frankfort about pensions, KRS' booming enrollment and the role played by outside employers seldom comes up. State Auditor Crit Luallen issued a report last week citing problems with KRS' financial viability and management, but she did not address the question of who is allowed into the system.
"To my knowledge, this has never been an issue that anyone has raised. Of course, most of these entities have participated for years, certainly pre-dating me," said KRS interim executive director William Thielen, who joined the agency in 2006.
Who's in there?
Hundreds of government employers are enrolled in KRS, including the state of Kentucky, counties, cities and school districts. (Teachers have a separate pension system that covers 125,158 people.)
Then there are "quasi-governmental entities," the term used in a 2010 report by the Legislative Research Commission that tried to examine these groups' public accountability.
State law does not define "quasi-governmental entity" and nobody — including KRS — keeps track of how many are part of the state's pension system, legislative investigators wrote.
The investigators defined the groups as having been created "to serve public interests," but with legally independent status from government and finances that may or may not be transparent to the public.
These independent groups may join KRS if they can prove their function is "sufficiently governmental," the LRC found.
This leads to occasional controversy over whether or not a group is public, such as the Kentucky League of Cities, which provides insurance, educational and lobbying services for city governments. League officials have compared key parts of their group to a private-sector company.
Sylvia Lovely quit as the league's executive director in 2009 after a scathing state auditor's report about spending practices and alleged conflicts of interest. The auditor also noted that the league belonged to KRS, and Lovely was eligible for an annual pension of more than $165,000.
A credit union, a laundry
Examples of other outside employers in KRS include:
■ Commonwealth Credit Union (365 employees enrolled in KRS), based in Frankfort, has $890 million in assets and $58 million in annual revenue. The legislature amended state law in 1992 to allow the credit union to join KRS because its customers are government employees.
■ The Council of State Governments (149 employees enrolled), headquartered in Lexington, is a national organization that represents elected leaders of the 50 states. Its chairman is Montana Gov. Brian Schweitzer. Gov. Paul Patton ordered KRS to accept the council in 2003 based on it being a "joint governmental agency."
■ Seven Counties Services (3,145 employees enrolled), based in Louisville, is a private, nonprofit corporation that provides mental-health and disability assistance on contract for the state Cabinet for Health and Family Services. Its $90 million a year in revenue comes mostly from government sources, including Medicare and Medicaid.
■ The Eastern Kentucky Concentrated Employment Program (102 employees enrolled), based in Hazard, assists job seekers and employers. It's funded by and operated under the federal Workforce Investment Act.
■ Jefferson County Medical Center Laundry (150 employees enrolled), in Louisville, washes linen for the city's major hospitals. The laundry is considered public because it was built in 1970 with $3.3 million in public bonds, and it spun out of the Louisville Medical Center, a nonprofit group of hospitals and other health care organizations.
In interviews, outside employers said their workers are grateful for public pensions.
However, there is some grumbling about rising costs. Trying to shore up its unfunded liabilities, KRS now requires larger employer contributions, particularly in the local government pension fund, which includes many of the outside employers.
More than anything the legislature does, this might discourage groups from joining in coming years, employers said. KRS attributes a slight drop in enrollment last year to these costs, as fewer employers desired to join the system, and the national recession, which has led to hiring freezes and layoffs.
"In the last five years, the employer's share of this benefit has gone from 12 percent of our annual payroll to 20 percent. That's just not sustainable in the long run for any not-for-profit enterprise," said Dean Johnson, vice president of community relations at Seven Counties Services.