Senator is not convinced court ruling means agencies can bolt pension system without paying obligations

06/13/2014 05:30 PM

As government employees and officials figure out how to fight a ruling allowing a quasi-governmental agency to leave the public pension system, state Senator Chris McDaniel, R-Taylor Mill, says the ruling should be looked over very carefully.

After a federal bankruptcy judge ruled in favor of allowing the non-profit Seven Counties Services to pull out of the public employees’ pension fund last month, the Kentucky Retirement System has decided to appeal the decision .

State leaders are concerned the ruling means the agency can pull out of the system and leave their current obligations behind for the state to pay. If so, the question becomes whether this ruling will trigger a domino effect of other agencies bolting the system as well.

“If all these quasis begin to exit the system, it will create quite a strain on the rest of the employers who mainly count on the general fund budget,” McDaniel said. “So yes, this is very dangerous financially for the commonwealth.”

McDaniel said as the state and the pension system, it is important to take a good, hard look at the ruling because he believes it says the agencies can proceed with their bankruptcy filings, not that the obligations will be discharged.

The Republican state senator also expressed similar sentiments to that of House Speaker Greg Stumbo, who told Pure Politics he feels strongly that an agency who wanted in the system so badly should have to pay their obligations.

McDaniel said he understands the agencies are dealing with crushing financial pressures, but said the burden should not fall to the state.

“At the end, the commonwealth has a pension plan in which these organizations are participating in and they have to honor their obligations under them,” McDaniel said (at 4:30). “Remember, Seven Counties only has existed since maybe the 70s after the bankruptcy of their predecessor. The obligation of the commonwealth to continue to contract with any given organization is not necessarily iron clad and I think they ought to think very strongly about the contracting entity in terms of their exiting the system without taking obligations with them.”

As for the state of the state pension system as a whole, McDaniel said the fact that the system currently sits at 23 percent funded is concerning. He said the passage of a bill last year aimed at fixing the system will succeed and the state will see improvements once the full payment into the system happens next month.

“I think we need some time for the additional cash infusion to begin to bear fruits,” McDaniel said (at 7:00). “I am concerned, gravely concerned about where the pension plan stands but the good thing is they are on sound footing in terms of beginning to work their way up come July 1 of this year.”


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