Kentucky lawmakers approve pension relief for universities, public agencies

The House and Senate reached a deal Thursday night on how to provide pension relief for the state’s regional universities and “quasi-public” agencies, such as county health departments, mental health nonprofits and other groups that are technically outside state government.

Helping the universities and agencies carry their share of the state’s $37 billion public pension shortfall without slashing services or even closing their doors proved to be perhaps the trickiest problem facing the 2019 General Assembly, lawmakers said.

“This bill provides an answer,” Senate budget Chairman Chris McDaniel, R-Latonia, told a committee of lawmakers shortly before they signed onto the plan.

The Senate and House voted to accept the plan, included in House Bill 358, later in the night. It now goes to Gov. Matt Bevin for his veto or signature.

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. 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 they are finished.

For organizations quitting KRS, their employees who have been hired since 2014 — and all new hires — will be enrolled in defined-contribution plans. 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.

If an organization falls more than 30 days behind on its payments, the state Finance and Administration Cabinet will take over management until payments are being made again. In this event, all employees — including longer-term — will be switched into defined-contribution accounts, and pension checks for retirees will halt until the organization is caught up.

The plan will cost the state’s primary pension fund an estimated $799 million, resulting in a 5.3 percent increase in what the rest of state government will have to pay for its pension contributions next year, according to an actuarial analysis prepared for KRS by GRS Retirement Consulting.

But McDaniel said lawmakers understood that KRS would take a short-term financial loss no matter what pension relief bill they adopted. The nightmare scenario, McDaniel said, is more organizations following the example of Louisville mental health nonprofit Centerstone, which complained of soaring pension costs and filed for bankruptcy in 2013, no longer paying KRS anything. The Kentucky Supreme Court is currently considering whether that was legal.

“I’ve often said, there are no good alternatives here,” McDaniel said.

Critics of the bill complained that it was a complex measure 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.”

Kentucky Government Retirees, a Facebook advocacy group the closely monitors the pension situation in Frankfort, sent out its own fiery statement. The legislature’s plan will further undermine the state’s primary pension fund, which only has 13 percent of the assets it’s expected to need to meet future liabilities, the group said.

“House Bill 358 establishes a disastrous funding policy for the nation’s most fragile state pension plan. It will drive up unfunded liabilities and increase employer contributions for the remaining employers in the system. As a consequence of this ill-considered action, we have no confidence that legislators will be able to fully fund pensions in the 2020 session and beyond,” the group said.

Also Thursday, the legislature gave final passage to:

▪ A bill that would ban the use of tobacco products and e-cigarettes on the grounds of public schools.

On a vote of 28-10, the Senate sent House Bill 11 to Republican Gov. Matt Bevin for his consideration. The bill in the Senate was handled by Sen. Ralph Alvarado, R-Winchester, who is running for lieutenant governor this year on Gov. Matt Bevin’s re-election ticket.

Alvarado said Bevin has told him he will sign the bill into law. Bevin has absolute control of the fate of any bill lawmakers sent him Thursday because the General Assembly will not be back in session to override any vetoes.

The bill would ban students, employees and volunteers from using any tobacco product, including e-cigarettes, on school property or during school events. School districts would be allowed to “opt out” of the ban within three years after implementation of the law.

Bonnie Hackbarth, a spokeswoman for Foundation for a Healthy Kentucky, said the group would work with the Kentucky School Boards Association on a model tobacco policy and would launch an education campaign in the next few weeks focused on children talking to children about the dangers of e-cigarettes and vaping.

In speaking for the bill, Alvarado, a physician, said 8,900 Kentuckians die each year from tobacco use. “It’s time for Kentucky to step up to the plate and support our children,” he said.

Sen. John Schickel, R-Union, said the bill is an example of “government overreach” and that decisions about tobacco use should be left to school boards.

Terry Brooks, executive director for Kentucky Youth Advocates, applauded passage of HB 11, saying it was “a profound win for Kentucky’s kids.”

He said it carries “special impact because of the boom in e-cigarette popularity.”

The Kentucky Chapter of the American College of Cardiology said the bill, introduced by Rep. Kim Moser, R-Independence, preserves local control by leaving enforcement and penalties up to each individual school district.

▪ Senate Bill 18, which outlines employers’ responsibilities for accommodating pregnant employees. It was sponsored by Sen. Alice Forgy Kerr, R-Lexington.

Kate Miller, advocacy director of American Civil Liberties Union-Kentucky, called the bill “a great victory for Kentucky families” and said it “provides much-needed clarity for employers and reasonable protections for pregnant workers to prevent problems before they start.”

▪ The legislature overrode Bevin’s veto of House Bill 4, which gives the legislature more oversight of executive branch administrative regulations.

Bevin also vetoed two provisions in HB 268, the budget bill. Senate Majority Leader Damon Thayer, R-Georgetown, said lawmakers did not override the vetoed provision dealing with how universities dispose of property but did override the one dealing with the flexibility of the state’s 15 Area Development Districts to spend money.

This story was originally published March 28, 2019 at 6:24 PM.