Pension Decision Looms Over Kentucky Legislature's Last Day

Mar 26, 2019

When the Kentucky Coalition Against Domestic Violence joined the state's pension system in the early 2000s, it had to set aside roughly 6 percent of each employee's salary for the retirement plan.

Today, it's nearly 50 percent — and it's scheduled to jump to 84 percent in July, which state officials say is necessary to keep one of the country's worst-funded public pension systems solvent.

The coalition oversees a $10 million state contract that houses about 5,000 victims of domestic violence each year in emergency shelters, mostly women and children. But executive director Sherry Currens said the agency can't afford to make those payments. And it also can't afford to leave the system, which would cost millions of dollars more.

Either option could force the agency and at least nine of its 15 regional affiliates to close.

"We just don't know what to do," she said.

The dilemma is an example of the perils of public pension funding facing states across the country. Kentucky lawmakers will try to help when they return to work on Thursday for the final day of the 2019 legislative session. But they have not agreed what to do.

The state House of Representatives wants to freeze contribution rates at about 50 percent for another year, which would give lawmakers more time to find another option but would likely make that option more expensive.

The state Senate came up with a plan that would let the coalition and other agencies like it leave the system while paying a portion of what they owe. If the agency leaves, its employees pension benefits would be frozen. The exception would be universities, whose employees could opt to stay in the system.

The plan would give the agencies decades to pay back what they owe, plus interest. But that plan would cost the retirement system, which is already facing a $13 billion shortfall, up to another $1 billion.

Kentucky's retirement system includes 118 "quasi-governmental agencies" — independent agencies with some connection to state government, giving them an option to join the state retirement system. Currens said the Kentucky Coalition Against Domestic Violence first joined the system so its employees could get health insurance.

Now the pension system is in trouble following decades of underfunding by the state legislature and disastrous investment losses in the Great Recession, making many of those agencies regret their decision to join the system.

Some of the quasi-governmental agencies support the Senate's plan, including many of the local health departments. But others, including the Kentucky Coalition Against Domestic Violence, support the House version. Currens said it's the only plan that would save the coalition from default. She said most of the agency's money comes from federal grants, which they can't use to make payments on pension debt.

"It's not that we're trying to get out of anything," Currens said. "We really are at a place where we can't afford to stay in, but we can't afford to get out, either."

Matt Bevin, Kentucky's Republican governor who is running for re-election this year, has sided with the state Senate. He sent lawmakers a letter on Friday saying he would sign the Senate's proposal. He vowed to veto the House's proposal if it made it to his desk.

"I cannot in good conscience support or sign another temporary kick-of-the-can that underfunds this system and makes the ultimate solution even more expensive," Bevin wrote.

Lawmakers can't ignore Bevin's veto threat because they only have one day left to decide what to do. The state Constitution won't let the legislature meet more than 30 days in odd-numbered years. This year, they have already met 29 days. They're scheduled to convene on Thursday for the final time this year, meaning they won't be able to override a potential veto by the governor.

Republican state Rep. James Tipton, the author of the House plan, said lawmakers are still discussing what to do, adding: "We cannot control what the governor does or does not do in relation to a veto."

Still, Tipton noted all options are bleak.

"There is no option we have where the taxpayers of Kentucky are not going to wind up paying more money to keep the (retirement system) afloat," he said.