ASHLAND Some tough decisions are ahead for health districts across Kentucky as the agencies cope with a newly passed state law aimed at pension reform.
The Commonwealth is facing well-chronicled problems with a Kentucky Retirement System considered the worst funded pension system in the nation. Recent estimates indicate the system is underfunded by tens of billions of dollars. Gov. Matt Bevin has said the shortfall approaches $60 billion, prompting a failed, controversial attempt in 2018 at revamping the way Kentucky' provides retirement benefits to many state employees.
A law passed in 2018 aimed at reform was struck down by the Kentucky Supreme Court, essentially taking the state back to the drawing board when it comes to fixing the system.
This year, Gov. Matt Bevin called a special session to address just a small portion of the pension crisis — the retirement plans and pensions of employees of what are known as "quasi-government" agencies such as health districts, regional universities and some rape crisis shelters. These quasi-government agencies were looking at skyrocketing, required contributions to the pension system, prompting the General Assembly to pass House Bill 1, giving a one-year reprieve on those contributions.
Health district leaders in Eastern Kentucky said they are appreciative of the one year reprieve, but the fact is the burden of the increased contributions will soon be at their doorstep next year, with painful decisions afoot as to whether to keep their employees in the state system or get out while freezing benefits.
“In the past the actuarial percentage has been workable,” said Maria Hardy, director of the Ashland-Boyd County Health Department. "When I first started as a director it was around 20 percent and it increased to 30 and now this year since we got the recent reprieve and House bill 1 it is 49.47 percent.”
With a new pension law in place, Hardy said the contribution rate for the pension costs will be 83 percent, putting the health district at a nearly $500,000 deficit for its pension contributions starting next year.
The new law impacts thousands of employees across Kentucky. Under provisions of HB 1 most health districts have to decide by next year whether to keep their employees in the Retirement System and face huge increases in costs or get out of the system. The new law also offers up the change for employers to "freeze" employee pensions and have them moved to a 401-k style system, essentially allowing the agencies to leave and pay less than what they owe for their employees.
Facing the decision, Hardy went to the Boyd County Fiscal Court recently and asked for a local tax increase in the Health District's taxing district. The proposal would increase taxes an additional two cents per $100 of valuation in the district, raising the $500,000 to cover the health district's shortfall given the upcoming, increased costs for pension contributions. However, the proposal for a tax increase received a somewhat chilly response at the fiscal court and was tabled for future discussion.
Greenup County Health Department Director Chris Crum told the Daily Independent newspaper he doesn't like the idea of having to freeze his employees’ retirement.
“Both of the options to get out are actually more expensive than staying in ... in my mind I believe that we should stay in the retirement system,” he said.
Crum said the department received its financial retirement reports recently that stated the department would’ve had to pay $61,000 into the retirement system under the 84% for the month. Under the now 49% rate with the freeze in place he said $38,000 will have to be paid.
“Just over this month we’ll be seeing the savings of $23,000 as a result of that change ... we like that, we’ll like that for the rest of the year,” he said.
Carter County Health Department Director Jeff Barker is also appreciative of the temporary reprieve.
“That‘s really going to be a benefit for the health departments around the area, around the whole state,” he said.
Barker said the department plans on staying in the retirement system, noting there are several employees who have served for over 15 years.
“It’s going to be the best option for us not to opt out,” he said.
The issue is of course a matter of significant public debate as the race for governor in Kentucky approaches in November. The incumbent, Bevin, said HB1 is a positive step forward.
“We are grateful for the diligent work of fiscally responsible House and Senate members who came together to pass HB1," Bevin said after the law was passed. I applaud their dedication to delivering much-needed financial relief for Kentucky's quasi-governmental agencies and regional universities. This legislation provides a viable path forward for our mental health agencies, rape crisis centers, local health departments, and other community agencies whose dedicated employees provide critical services to citizens across the Commonwealth. While we have much work yet to do in addressing our $60 billion public pension crisis, HB 1 represents a positive step forward. I am confident that with continued collaboration and hard work, we can save our pension system and preserve it for the thousands of hardworking men and women whose financial futures depend on it.”
His opponent, Democrat Andy Beshear, said in a visit to Ashland this week that "The bill that (Bevin) ultimately got passed isn’t going to help anyone."
"While it creates a freeze that is going to keep our rape crisis centers and our health departments from closing it gives them in about eight months three options all of which are impossible," Beshear said. "They would go from illegally cutting the...contract rights of the employees to paying a lump sum to exist in the system that none of them could ever afford. The bill he passed isn’t going to be a solution. The solution is electing a new governor who is going to create new revenue for the pension system. We'll solve it in January.”
Still, decisions will have to be made in the coming months for health districts: stay in the system and face huge payment increases or freeze employee benefits and get out. The decisions will not be easy. Department of Public Health Commissioner Jeff Howard told the Associated Press leading up to the vote on HB1 that the pension problems are putting huge burdens on the districts.
"Kentucky local health departments can't afford to buy out (of the system). They also can't afford to stay in," Howard said.