In recent reports on Kentucky’s public pension crisis, the Bluegrass Institute revealed that many of the 1,701 entities that added to the Kentucky Retirement System over the years (mostly as a result of politicians seeking to curry political favor) were nonpublic agencies added by politicians seeking to curry political favors.
However, passage last year of Senate Bill 2 dramatically increased the amount that agencies are required to pay into the system to cover their employees, forcing at least one of those participants — Seven Counties Services, a mental health agency — to file for Chapter 11 bankruptcy and seek to flee the system.
The state wanted the judge to force the agency to continue contributing to the system — apparently with no regards to how forcing such a huge payment would affect Seven Counties ability to serve its 32,000 clients.
However, the judge offered a different take.
“U.S. Bankruptcy Judge Joan A. Lloyd concluded in her 83-page ruling that Seven Counties’ charitable function is jeopardized by pension contributions that have more than quadrupled over the past seven years. She further argued that ‘society’s most vulnerable citizens’ are entitled to safety-net services that the organization provides,” the Courier-Journal’s Mike Wynn reported. “‘A private entity does not have a guarantee of perpetual existence and can fail, she wrote. ‘…Moreover, the system simply cannot force a private entity to pay its employer contributions if it cannot afford to stay in business.‘”
This ruling not only opens the door for Seven Counties to bolt the Kentucky Retirement Systems, but many other agencies also likely will be looking to escape rising pension costs in 2015.
Much of the media’s narrative on this issue is incomplete — focusing only on the state’s failure to fully fund the system.
However, even if the state were able to infuse enough cash to make the system fully whole today, without spending reforms — especially restrictions on adding beneficiaries and increasing benefits — the state would find itself right back in a similar same position in 20 years.
As Bluegrass Institute president Jim Waters pointed out Sunday night on “Feedback with Tom Mitchell” on Louisville’s WGTK-AM, this issue should be of grave concern to all Kentucky taxpayers, who should send a clear message to legislators: Don’t raise our taxes to solve this problem you created by your overspending and vote-buying:
Kentucky’s public-pension crisis is among the worst in the nation.
Lawmakers in Frankfort must put clear and absolute restrictions on spending in the state’s pensions system. Without that step, they will essentially be kicking Kentucky’s public pension can down the road, where it will eventually end up stopping at the feet of the commonwealth’s taxpayers and businesses.
In a concluding report on the state’s pension system, the Institute offered 16 steps that could be taken immediately to address the pension system’s critical condition. No. 9 stated: “Remove all private, non-government entities — such as KEA KACo, KLC and Commonwealth Credit Union — from the state-run pension plan.”