Kentucky now has 'no choice' but to make more tough decisions on pension fund, Seven Counties leaders say

06/03/2014 07:21 AM

The leaders of Seven Counties Services say that as they move down the path of bankruptcy protection to escape the crushing weight of their pension obligations, the burden now falls to lawmakers and the governor to shore up funding for the Kentucky Retirement System.

David Holton, a former district judge in Jefferson County who chairs the board of the mental health center, said he knows the consequences of the agency’s decision to leave the system. (Watch the interview below).

This comes after a federal bankruptcy judge’s decision late Friday to allow the system to proceed with bankruptcy protection against the arguments of the state’s retirement system, which said the mental health agency should have been considered a state agency that couldn’t simply stop paying for its employees who are in the system.

An employer like Seven Counties bolting from the system would mean diverting income from the Kentucky Retirement System while leaving the system to cover the cost of the current and former Seven County retirees who are owed benefits. And the retirement fund is down to 23.2 percent of the money it needs to cover its obligations to current and future retirees.

Seven Counties’ decision could have the practical effect of removing money from a financial Jenga tower that’s already teetering.

“We all understand the negative impact this ruling could have on the commonwealth of Kentucky,” Holton said.

“There’s no choice. Imagine the cuts that would have to be made to the retirement plans of these state workers if the state doesn’t do the right thing,” he added (6:00 of the interview).

That’s not to say Holton isn’t sympathetic to retirees in the system, such as Paul Guffey, the president of the Kentucky Public Retirees group. Holton spent most of his career in public service as a prosecutor before becoming a district judge, so he said he is in the Kentucky Employee Retirement System — not the judicial retirement system.

“I have the same concerns for my own interests. But my obligation as a chairman of the board of Seven Counties Services — and I believe our board took the same approach — is that our fiduciary responsibility is to the 32,000 consumers we serve,” Holton said (2:30). “The state has failed to fund the system properly and the ball’s back in their court now.”

He left open the possibility of the center negotiating a financial settlement to leave the Kentucky Employees Retirement System. The system estimates it will cost $90 million to cover Seven Counties’ employees, according to reporting by Mike Wynn of the Courier-Journal.

“I’m certain this will be topic number one. Other centers have expressed their interest in following suit if we were successful,” he said (5:00). Find out what his message is those chairmen at 5:30.

Holton and Seven Counties President and CEO Dr. Tony Zipple were in studio Monday to answer questions about what comes next:

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