PensionsFebruary 6, 2020

Kentucky Governor’s Budget Plan Would Cut State Pension Contributions

State retirement system pegs the shortfall at $83 million, but Beshear says it’s $25 million.

Reported by Michael Katz

Kentucky Gov. Andy Beshear’s two-year budget proposal would result in the state’s retirement systems receiving tens of millions of dollars less in pension contributions than had been expected over each of the next two fiscal years, Kentucky Retirement Systems (KRS) officials told state lawmakers.

In testimony before Kentucky’s House budget subcommittee on higher education last week, KRS Executive Director David Eager estimated the shortfall would be $83 million a year.

“That would be $83 million a year that is not going into the retirement system,” said state Rep. James Tipton (R-Taylorsville) during the hearing, according to the Lexington Herald-Leader newspaper. “So at some future date that would probably have to be made up?”

Eager agreed, saying that the pension system’s actuarial consultants have already warned the state’s retirement systems that years of subsidizing the regional universities and other agencies to keep their rates lower have left a hole in the unfunded liability that forces rates to rise for the rest of state government.

However, the governor’s office contested the $83 million figure and estimated that the shortfall would only be $25 million a year.

“Under Gov. Beshear’s plan, $110 million more for the [agencies] is going to the Kentucky Employees Retirement System in each of the next two years compared to the last budget,” said Crystal Staley, a spokeswoman for Beshear. “The governor’s plan will result in an 84.41% employer contribution rate, which is about $25 million shy of the 93.01% rate, but is much greater than the 49.47% being contributed now.”

The budget plan would add $18.7 million a year from the general fund to finance the new frozen pension contribution rate of 67.41%. All six regional universities and the Kentucky Community and Technical College system schools have employees that participate in the Kentucky Retirement Systems pension plans. According to the budget proposal, these institutions are facing an increase of more than $45 million to meet the 93.01% employer contribution rate. In the 2018-2020 budget, to avoid an increase to 83.43%, the contribution rate was frozen at the 49.47%.

The budget includes full funding for the actuarially determined pension contribution for all state employees. The pension employer contribution rate increases for the largest pension plan, the non-hazardous plan, rising to just over 93% from 83.43%, while the state police contribution rates increase to just under 157% from 146.3%. An additional $56.5 million in fiscal year 2021 and $63.9 million in fiscal year 2022 is provided from the general fund to finance the increased rates that pay the actuarially determined contribution. The budget also includes full pension funding for the Teachers’ Retirement System for just the second time.

Senate Majority Leader Damon Thayer (R-Georgetown) said lawmakers will study Beshear’s budget proposal, adding that “we don’t want to accidentally under-fund the pensions,” according to the Herald-Leader.