Seven Counties Ruling Could Cost Pension System $2.4 Billion

Jun 25, 2014

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Kentucky’s mounting pension troubles could get worse as the state plans to appeal a court ruling requiring certain quasi-governmental agencies be liable for pension debt.  

Last year, Seven Counties Services, a mental health nonprofit that contracts with state government, filed for bankruptcy over its pension debt.

When a federal judge ruled last month that the nonprofit didn’t have to pay those obligations to the Kentucky Retirement System, KRS executive director Bill Thielen said his organization would appeal the decision. If that effort fails, the remaining employers in the pension system could foot a $2.4 billion tab to cover the cost of the added liabilities. 

“The actuaries have determined it would increase the contribution rate over a 20-year period. It would ratchet up a little bit each year over 20 years about 6.5 percent… that would have to be picked up by the remaining employers in the system,” Thielen said.

He added that he supports legislation like that crafted by Republican Sen. Chris McDaniel that would require groups like Seven Counties who voluntarily withdraw from the retirement system to pay off their pension obligations.

“They would only be able to withdraw having fully paid their obligation, and that’s what we believe should be the case, otherwise all the other participating employers are going to have to pick up the tab,” Thielen said.

Kentucky’s beleagured Retirement System currently has $17 billion in unfunded pension liability.

Thielen said KRS will file a motion to determine jurisdiction for the appeal by the end of this week. Lawmakers say they will continue studying the issue, and will try to have a legislative remedy ready for next year’s General Assembly.