Key pension-related bills likely being pushed off for more study, House chairman says

04/01/2014 06:38 PM

The House will put off voting on two Senate bills that were supposed to address unintended consequences of Kentucky’s cash-strapped public pension system.

Rep. Brent Yonts, D-Greenville and the chairman of the House State Government Committee, said his committee will hold more hearings after the General Assembly adjourns to more thoroughly vet the two bills, both sponsored by Sen. Chris McDaniel, R-Taylor Mill.

The two bills are:

1. a measure to would allow quasi-governmental agencies in the Kentucky Retirement System to buy their way out

2. a bill regarding the practice of spiking salaries to get richer retirement benefits.

The bills are well-intentioned but may have unintended consequences of their own, Yonts said. He told Pure Politics on Monday that he would focus on them this summer and fall during interim meetings of the state government committee.

Spiking bill, Senate Bill 142

Spiking is a practice in which a public employee has gotten sharp salary increases in the final years of work just before retirement. That inflates the amount of retirement benefits that employee would receive for the rest of his or her life.

That can cause financial problems for the Kentucky Retirement System because it calculates the expected earning of each employee throughout his or her career. And late surges in an employee’s earnings can lead the system to pay out, on balance, more than what that employee and the employing agency were paying in.

“It was putting quite a strain on the pension system,” McDaniel told Yonts’ committee last month when explaining the spiking clean-up bill he filed.

The pension reform bill from last year tried to combat that by creating a “spiking trigger” — when an employee in the Kentucky Retirement System gets a bump in pay that’s more than 10 percent above the year before. If an employee hits that threshold, the agency that employs the worker is 100 percent responsible for covering the extra retirement contribution for that employee.

Promotions are excepted from this rule.

“While this has functioned very well, the reality is that the employers — your city police departments and fire, sheriffs, your state police — are simply not going to allow the employees to work to these spiked levels” particularly with overtime, McDaniels told the House state government. It’s a double-whammy for the Kentucky State Police, who have been paying many troopers overtime using federal funds for certain speed-trap and other road patrol programs.

McDaniel’s bill, Senate Bill 142, allows the employer and employee to contribute what they regularly owe even if that employee gets a bump in salary of more than 10 percent year-over-year. That gives the Kentucky Retirement System more cash to invest. And McDaniel said once the workers retire, the excess contributions the employee made while they were getting big pay bumps would returned to them with interest. The excess money paid in by the agencies they worked for would be used to pay down the Kentucky Retirement System’s unfunded liability, McDaniel said.

McDaniel said last week that he had not received any concerns from Yonts or other House members about the bill.

Yonts said his concerns are two-fold.

He said he’s afraid McDaniel’s proposed fix might break the inviolable contract the state has with workers who are covered under the Kentucky Retirement System.

And he said he’s heard from Transportation Cabinet workers, who say their agencies will all but eliminate overtime payments in order to avoid the steeper retirement contributions for those workers racking up the overtime. And that, Yonts said, will lead to roads staying icy and snow covered when Kentucky has nasty winters like this past one.

Hotel California bill

McDaniel’s other pension measure that appears it will be put on hold is aimed at providing quasi-governmental agencies that have been allowed to join the Kentucky Retirement System a way out.

Many of those agencies — such as public health departments, mental health centers and rape crisis centers — are preparing for steep increases in how much they have to pay to the Kentucky Retirement System for their employees. In some cases that will go up to 40 percent of payroll next year.

So some want out. But, in this way, the Kentucky Retirement System is like the Hotel California, where you can check out any time you like but you can never leave.

The law doesn’t give an easy mechanism for a still-functioning agency to leave the system because the payments an liabilities for its current and future retirees are so intertwined with the fund.

Seven Counties Mental Health Center in the Louisville area has chosen the path of federal bankruptcy court to escape its payments.

McDaniel wants to allow those agencies to pay a lump sum to cover the existing employees who are part of the system in order to break free.

But Yonts said he’s not sure if that’s a viable solution:

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