State and local government will pay nearly $800M more in pension contributions per year under new rates

12/07/2017 04:56 PM

FRANKFORT – State and local governments will be on the hook for $794 million more in pension contributions in each year of the upcoming biennium.

The Kentucky Retirement Systems board of trustees approved new actuarial numbers on Thursday that increased contribution amounts for state and local governments.

The Kentucky Employees Retirement System non-hazardous pension plan, which covers most state workers, saw the largest spike in employer contributions under the new numbers, moving from 50.4 percent of payroll to 83.4 percent of payroll. That amounts to a $448 million-per-year increase from the previous budget cycle in actuarially required contributions, setting the total yearly amount to $1.3 billion.

The other state plans – KERS hazardous and the State Police Retirement System – will see their required contributions increase by $29 million total. For KERS hazardous, the state will need to finance $61 million, or 36.9 percent of payroll, each year while SPRS will cost the state $71 million, or 146.3 percent of payroll, annually in the upcoming two-year budget cycle.

Local governments will be required to pay $317 million more each year in the next biennial budget, with the County Employees Retirement System non-hazardous costing $700 million, or 28.1 percent of payroll, and the CERS hazardous plan totaling $257 million, or 47.9 percent of payroll, annually. Those figures are up from $469 million and $171 million per year, respectively.

Contribution rates for the KERS and SPRS plans passed the board unanimously, but trustees Vince Lang, Betty Pendergrass and Jerry Wayne Powell voted against setting new rates for the CERS plans.

Lang suggested gradually phasing in lower payroll growth assumptions for the local government pensions, but KRS Chairman John Farris said that wasn’t allowed under state law.

“The time for debate was earlier this year about contribution rates,” Farris said. “We had that debate. We had spirited debate. We had two meetings where we had that debate, and it was a good discussion, and I’m one who is supportive after hearing from county judges and other folks that hopefully the legislature can come to some sort of consensus on a phase-in of those rates, but statutorily we don’t have the power to do that.”

Asked whether the numbers approved at Thursday’s meeting should provide a wake-up call to lawmakers and others affected by the increased contributions, Farris said they’re simply “a budgetary reality come early January.”

“I believe that this governor is committed to funding the (actuarially required contribution),” he said. “… I took this position with the knowledge that the governor was going to be a governor that fully funded the required contributions, and so we have those numbers.”

He also chided past KRS boards for using improper assumptions, such as 4 percent payroll growth in state government at a time when the state’s payroll stagnated.

The numbers approved by the KRS board could change depending on the outcome of upcoming pension reform talks. Gov. Matt Bevin has said he plans to call a special session ahead of next year’s budget-writing session to pass a reform bill, but most House Republicans signed a letter this week asking the governor to delay the legislation until lawmakers come back to Frankfort Jan. 2.

State Budget Director John Chilton said the “flow” of pension reform is in the hands of the General Assembly.

“My information that I’ve heard as well as what I read in the media would indicate that there’s going to be some changes to what was presented back in October,” Chilton told the KRS board.

“Some of those changes may be substantial, but I don’t know what all of those are at this point. There’s not been another draft finalized in draft form that’s been presented. When that’s done, it’ll be sent to the actuaries for rescoring, and hopefully that will happen a short time in the future.”


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