Governor Matt Bevin signed last week a pension relief bill for regional universities and quasi-state agencies, following a special legislative session. On Sounds Good, Matt Markgraf sat down with Murray State President Bob Jackson to unpack what this new law means for the university and the next steps over the months ahead.
In explaining how this bill provides “relief” to Murray State, Jackson said the immediate relief is that it freezes current KERS pension rates at 49% (rather than spiking to around 84%). He said about 300 people are in KERS at Murray State.
This rate freeze has nothing to do with the better-funded KTRS, which many faculty and other K-12 teachers are in.
Jackson said he agrees with Eastern Kentucky University president Michael Benson’s description of the bill as “the best option of some challenging options.” Jackson said the bill - now law - gives options to make decisions in the year rates are frozen. “So, during that one-year period of time, it will allow us to review the various options provided in the bill - now law - as well as other options that may be available to us in regard to mitigating our exposure to KERS pension rates,” he said, adding that those rates will change again on July 1.
Should Murray State decide to stay in the system, as an example, the rates will then go up on July 1, and that increase could be upwards of 90%.
One option moving forward involves getting out of the KERS system in its entirety. “So, Murray State University's entire obligation inside the system, which is approximately $100 million dollars. In some form or fashion, we would buy ourselves out of that system. That is one option.” Another option, he said, is a partial exit of the system.
“We will be looking at those and other options going forward,” Jackson said. Any decision would require board action.
“What we’ve had in the past and, really, what we have going forward is unsustainable. Whether it’s 49% or if its 84% or if its an amount greater than 84% in regard to the pension rates, it’s unsustainable. It’s unmanageable for Murray State University as it is for the other peer, regional institutions,” Jackson said.
The process of ‘looking at the options’ could mean contracting certain services, Jackson said, or looking at what it means to get out of the system in its entirety, whereby employees that would go into the KERS plan could choose to go into a 403b type retirement plan. “Currently, today, in TRS, our faculty members and administrators that come to work here have an option. They can be in a 403b plan or they can be in the TRS plan, as an example. So they have an option, whereas individuals that are hired that would qualify for KERS do not have an option. By law, they must go into that pension plan.”
Much of the analysis involving Murray State’s financial analysis of options moving forward will be done internally, Jackson said, but some external sources will help review and make sure the university is making the right decision going forward. He said a bond rating agency may be involved “from the standpoint of finding out how does this impact us in the future regarding other types of bonds that the university may need to sell into the marketplace to renovate dormitories, as an example, our residential colleges, to make those type of renovations or other buildings.”
Just 10 years ago, Jackson said, the university’s pension rates were about 10% ($1.66 million). Today, they’re 49% ($7 million) and frozen. Without the recent legislation, that rate would have been 84% ($11 million). “And so, that’s the overwhelming unsustainability part of this whole equation is: this cannot continue occurring. And so we’ve got to look at some very thoughtful plans on how to mitigate that,” he said. “Because every dollar that’s unnecessarily put into the pension system is a dollar that’s not going into teaching and learning. It’s a dollar not assisting the students and families of this region and state. I consider this pension issue - it’s an educational issue.”
“This is a complicated topic and it’s a big financial topic and it’s not one that universities normally talk about just because we don’t normally have to deal with issues like this at a public institution,” Jackson said, adding it’s one of the biggest financial issues facing Murray State and other state universities. He said Murray State is working through the issue thoughtfully and appreciates everyone’s time and attention on the matter.