City, FPB also face big jumps
With an estimated $26 billion in unfunded liabilities, Kentucky Retirement Systems finds itself in a gaping hole. Climbing out of the hole will likely require the public pension system, which serves 364,000 government employees, to lean heavily on county agencies.
For Franklin County agencies, which already pay about $11.4 million annually into the two County Employees Retirement System (CERS) funds, that could mean a bill that jumps $4.4 million in the 2018-19 fiscal year alone, according to a State Journal analysis of county data and new KRS employer contribution estimates.
Franklin County Treasurer Susan Laurenson, who determines the contributions for Franklin County Fiscal Court, called that potential one-year hike “a big wow — a big, bad wow.” Laurenson estimated that the Franklin Fiscal Court alone, which includes the county fire department and sheriff’s office and as well as other elected officials, could face an increase of about $1 million.
The State Journal estimates that the City of Frankfort could face an even bigger $1.7 million increase, or 39 percent, and the Frankfort Plant Board could also face an increase of nearly $1 million, or 37 percent from current levels. County agencies overall face a 38 percent increase in contributions, according The State Journal’s analysis.
These increases come as a result of tightening KRS assumptions. Earlier this month, the KRS board of directors voted to change the estimated investment rate of return to a more conservative 6.25 percent from 7.5 percent for the two CERS funds. They also lowered their estimate for county payroll growth to 2 percent from 4 percent.
With less cash expected to come in from investment returns and growing payrolls, actuaries will have to ask local government employers like Franklin County Fiscal Court and the City of Frankfort to pay more. According to slides that KRS presented to its board members this month, county employers will likely have to contribute 26.4 percent of what they pay non-hazardous employees to the CERS Non-Hazardous fund and 44.2 percent of what they pay hazardous employees (police and firefighters) to the CERS Hazardous fund in the next fiscal year.
Contribution rates for the current fiscal year are 19.2 percent of non-hazardous payroll and 31.6 percent of hazardous payroll. The contribution rates for the 2018-19 fiscal year won’t be officially set until the board’s next meeting in September.
“There will be a reluctance to hire additional staff and there will be a closer look at not hiring and using attrition so those additional dollars can be freed up to fund the contributions,” said City Commissioner Robert Roach, who noted that the city’s relatively strong financial position could actually end up helping it in the long run compared to other cities as the pension crisis continues.
Roach is waiting on the results of Gov. Matt Bevin’s planned special legislative session to address pension and tax reform, which could involve splitting the better-funded county pension funds from KRS. Some fear, however, that Bevin’s solution might include decreasing benefits to retirees. Indeed, at the last KRS board meeting, Jim Waters, president of the Bluegrass Institute, a conservative think tank, urged members during a public comment period not to “retroactively fund benefit enhancements.”
Such fears have already created some turmoil here in Franklin County. Last week, Frankfort Fire Chief Eddie Slone and three senior members of the Frankfort Police Department resigned, all citing concerns about possible changes to their retirement plans.
Seeking to quell fears, KRS says it hasn’t yet seen any noticeable spike in retirements. In June, 636 members filed retirement paperwork, compared to 575 in the same month the year before.
KRS interim Executive Director David Eager told The State Journal that he has been receiving calls from concerned KRS members with increasing frequency. He just points them to laws that describe their benefits as an “inviolable contract.”
“Anyone in Tier 1 and Tier 2 is going to get their benefit,” said Eager, referring to members who entered the system before Sept. 1, 2008, and members who entered between then and the end of 2013, respectively.
On Thursday, KRS published a statement on its website titled “Rumors about Benefit Changes.” “Rumors are just that: rumors, and not facts,” the statement reads. “If something affecting the benefits administered by Kentucky Retirement Systems is confirmed, we will inform you via this website and KRS social media outlets, such as Facebook and Twitter.”
Eager, who has expressed interest in taking over as full-time executive director of KRS, pointed to Bevin’s statements urging legislators to keep their promises to retirees. To alleviate pressure on county agencies, Eager also suggested a future solution to KRS’ unfunded liabilities may include a fixed contribution rather than an amount that is a share of payroll.
“This is the biggest problem the state has ever had — the biggest fiscal problem,” said Eager of the pension crisis. “There’s no question.”