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Bardstown backs effort to separate state, local pensions

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By Randy Patrick

Across Kentucky there is a movement afoot to separate the pension plan for county, municipal and school district employees from the troubled state employees’ retirement plan.

Last week, the Bardstown City Council backed that effort by unanimously passing a resolution to support a bill in the legislature this year to remove the County Employees Retirement System from the state system.

In his presentation to the council Tuesday, Greg Ashworth, the city’s risk manager and human resources manager, said Bardstown and other local governments are “attached to the Titanic, and we’re going to go down with them” unless they act.

The resolution, which is not binding, came during the same week that Gov. Matt Bevin addressed the pension crisis in a speech to city and county employees in Louisville and lambasted the past leadership of the Kentucky Retirement System, one of the worst funded in the country.

“What has been done in our pension systems has been criminal,” Bevin said. “It has been negligent, it has been irresponsible and it is shameful.”

The governor asked for the trust of local government employees in addressing the broader issue of all the state pension plans.

But at their meeting Tuesday, Bardstown’s elected officials made it clear they want a divorce.

“The bottom line is the state legislature didn’t do its job” in adequately funding pensions, Councilman Bill Sheckles, a former Bardstown mayor, said. “That’s why we’re in the shape we’re in now.”

“I’m all for it,” he said of Senate Bill 226, the bill sponsored in the last legislative session by Sen. Joe Bowen, R-Owensboro, to make the CERS a separate system with its own governing board.

Tracy Hudson, the city’s chief financial officer, said she too favors that approach.

“I’m scared that, like Social Security, I’m not going to have it when I get older, yet I have to keep paying into it,” she said.

If CERS remains part of the state system, she said, she might not be able to retire when the time comes.

Taxation without representation

The County Employees Retirement System is responsible for 74 percent of the assets, yet doesn’t have even one representative on its investment board, according to Ashworth.

Currently, the CERS is funded at 61 percent, while the part of the Kentucky Employees Retirement System that covers nonhazardous-duty personnel was funded at 16 percent last year.

CERS and KERS are both under the umbrella of the Kentucky Retirement System, as is another fund for the State Police.

Teachers have their own separate retirement system, which has also had an underfunding problem, but most school district employees are under the same plan as county and city employees, the CERS.

The KERS is trending downward, while the CERS is trending upward.

An actuarial study estimates that by 2043, the city and county employees plan will be fully funded.

The state employees plan could go bust if the governor and legislature don’t do something to increase its funding.

Senate leader Higdon ‘trying to get to yes’

Senate Bill 226 didn’t get to the floor for a vote in 2016 because Bevin asked lawmakers to hold off on it until he could address the issue, State Senate Majority Whip Jimmy Higdon, R-Lebanon, whose district includes Nelson County, said.

However, he expects Bowen to lead the charge for a similar bill if the governor calls a special session this year, as expected.

“I’m trying to get to yes,” Higdon said of the legislation, but added: “I have some concerns.”

Despite the state system’s troubles, he said, there are some “efficiencies of scale” in having the systems linked.

Administrative costs and liability are a couple of things legislators would need to take into consideration, he said.

And regardless of what the city and county employees want, separating the systems would require an act of the legislature to dissolve them, just as it created them.

The governor would also have to sign a bill into law unless legislators have enough votes to override a veto, and at this point, Bevin isn’t supporting separation.

Nelson County Judge-Executive Dean Watts said last week the Fiscal Court has not yet dealt with the resolution, but he thinks it’s probably futile.

“The resolution doesn’t mean anything if the legislature is not willing to separate” the pension funds, he said, and he doesn’t think Bowen’s proposal will pass.

County Magistrate Keith Metcalf was at the meeting at the Galt House Thursday when the governor addressed the issue, and he said almost every local official in the room was wearing a sticker that said “A pension is a promise. Keep the promise.”

Like Watts, he thinks the resolution is probably pointless if the governor doesn’t support it.

“He’s definitely not going to let it split,” Metcalfe said, but he said Bevin intends to propose a solution to the legislature on Monday.

New Haven City Clerk Joanie Corbin said its city commission is expected to take up the issue at its next meeting, on Sept. 21.

Bloomfield Mayor Rhonda Hagan said she hasn’t seen the resolution because she’s been on vacation, but it could come up next month.

Former Fairfield Mayor Mary Ellen Marquess, who attended the last meeting of its commission, said it wouldn’t apply to the little town with a population of 114 last year because its only staff, a part-time city clerk, is a contract employee.

Rate of return means higher contributions

One reason Bardstown is interested in separating from the state system is to save money.

Ashworth said that last year, the state lowered its assumed rate of return for CERS employees from 7.5 to 6.25 percent and its payroll growth estimate from 4 to 2 percent.

“That means our contribution amount has got to go up,” he said — from 18 to 26 percent for nonhazardous duty employees and from 31 to 44 percent for hazardous duty. “It’s a 34 percent overall contribution rate increase, and it’s going to come down to about a $547,000 increase on our payroll for next year,” he said, referencing the 2019 fiscal year that begins next July 1.

Hudson said that if the city has to pay out half a million dollars more for retirement, “there won’t be any raises” for city employees.