Legislation passed by the Kentucky House of Representatives intended to provide long-term relief from steep increases in pension payments faced by quasi-government agencies like regional universities, health departments and rape crisis centers represents small steps in the right direction.
However, the Kentucky Senate, which now will consider House Bill 171 (HB 171), could turn this good legislation into a great win for taxpayers by tweaking it to reduce future strain on the commonwealth’s cracking retirement system.
While it addresses some of reformers’ concerns – such as recognizing that quasis’ liabilities differ widely not only from state agencies but also from each other – HB 171 stops short of drilling all the way through by not lowering these groups’ assumptions to reflect how unalike their retirement patterns and termination rates are compared to traditional government employers in the same retirement plan.
Doing so, of course, would greatly disturb bureaucrats steering the Kentucky Retirement Systems’ (KRS) listing ship who don’t want participating employer-agencies to ever fire anyone or outsource work – even if doing so makes complete sense and saves taxpayers dollars – since it means fewer folks paying into their beloved government-pension system.
But the system as it’s currently set up actually incentivizes quasi agencies to dump work and workers by forcing them to make pension-benefit payments at rates far above their actual liabilities.
Quasis within the Kentucky Employees’ Retirement System (KERS) are forced as a group to pay 25% of the system’s pension bill despite incurring only 20% of its liabilities.
All quasis facing this scenario, in fact, should look for ways to outsource and lighten their workforce.
The Senate should change HB 171’s approach of determining quasi agencies’ future payments based on their individual liabilities and instead establish an aggregate amount so all groups pay the same rate since they joined the system with the understanding it’s a multi-employer plan in which they would contribute at a group-wide rate rather than play lone KERS rangers.
While the bill addresses the unfairness of requiring quasis to pay more than their aggregate liability, it creates another kind of wrongness in that some Non-P1 agencies such as the Kentucky High School Athletic Association (KHSAA) would pay as little as 33% while P1 employers like health departments could see as much as 96% of payrolls get hauled away in pension-contribution barrels.
It would be like the federal government forcing a business owner to jack up his Medicare rates during the renewal period because some of his employees suffered expensive health issues during the previous year, or forcing certain employers to increase their Social Security rates because they had too many who retired.
No, all employers contribute the same Medicare and Social Security rates for each employee.
Changing the overall rate paid by all agencies would be much more acceptable in a multi-employer system than determining the amount of pay on groups’ individual liabilities alone.
Some experts suggest requiring all quasis to pay around 60% would be fair and necessitate fewer direct additional dollars from the state to subsidize agencies which, in HB 171’s world, will shut down without funding boosts.
Establishing an across-the-board 60% contribution rate also would have the collateral benefit of forcing agencies who would pay less otherwise to leave the system since they won’t want to contribute twice the amount of their liabilities.
But why would agencies like the KHSAA leave KRS since under HB 171’s current version only their payments will be comparatively low – very much so in some cases – while their employees continue accruing benefits at the same level they always have?
Who cares about relieving some retirement systems’ burdens on future generations when these quasi-group beneficiaries can have their pension cake and eat it now?
Jim Waters is president and CEO of the Bluegrass Institute for Public Policy Solutions, Kentucky’s free-market think tank. Reach him at email@example.com and @bipps on Twitter.
The Bluegrass Beacon is a weekly syndicated newspaper column posted on the Bluegrass Institute’s website after being published by newspapers statewide.