As you consider how to provide needed relief for quasi-governmental agencies facing substantial pension increases, it is important to do so in ways that do not break legal promises to employees of those agencies and worsen financial problems for the underfunded Kentucky Employees Retirement System (KERS) non-hazardous system.
However, House Bill 358 as amended by Senate Committee Substitute would present legal challenges as it breaks the inviolable contract to Tier 1 and Tier 2 employees in those agencies, putting many of those employees at risk of losing approximately 1/3 of their retirement income, as shown in the table below. For career employees, the loss would be well over $100,000 in lifetime income.
Second, the Senate Committee Substitute provides terms to pay off liabilities that would add strain to KERS non-hazardous, shifting over $1 billion in costs to the state over the next few decades, as calculated by the actuary. Also, more strain would result because contributions from and on behalf of current and future quasi employees would no longer go into the retirement system.
Even with the quasi rate frozen at 49 percent over the last year, KERS non-hazardous is making progress due to higher state contributions (see graph below). We can continue along the current path for this year while examining revenue options in the next budget process in 2020 and allowing the Public Pension Working Group to finish its work. Maintaining the freeze for another year will allow us to protect the vital services quasis provide to communities, keep the legal promise we made to their employees and sustain the KERS non-hazardous plan.
Thank you for your consideration of this information.
Kentucky Center for Economic Policy