Sarah Mead
Contributing Writer
smead@murraystate.edu
The Kentucky House of Representatives passed House Bill 171 onto the state Senate in an attempt to lower Murray State’s employer percentage of payment into the Kentucky Employees Retirement System.
In December, legislation was enacted to raise the employer percentage rate payment from 49 percent to 93 percent of an employee’s salary. HB 171 is the latest attempt to reduce this change in percent to a more manageable number.
“The pension issue is probably the biggest single financial issue that we deal with,” President Bob Jackson said. “It’s really become an issue [in] the last two or three years. If you look back at the fiscal year 2002 through 2009, just ten years ago, we were paying about a 10 percent pension rate—a very manageable amount. The rate has been frozen the last two years at 49 percent. July 1, if we don’t pass legislation, the rates go to 93 percent. For us, that’s $11.6 billion, an over $5 billion increase.”
Drew Seib, interim chair and associate professor for the Department of Political Science and Sociology, said the role of the government is to find the best way to allocate monetary resources. However, he said agencies and universities are not prepared for as drastic of an increase as 93 percent.
“If we think of politics about the allocation of resources—monetary or otherwise—this is about how the state allocates money to agencies across Kentucky,” Seib said. “Currently, the debate is about how much should public universities and other public agencies be required to pay to cover a deficit in the pension retirement account. Going back less than a decade, this sum was around 15 to 20 percent of an agency’s payroll. Current laws increase that to 93 percent, a very significant increase, especially in such a short time and during a time when state agencies have not really had budgets restored since the cuts of the Great Recession a decade ago.”
In an effort to combat the 93 percent increase, Murray State and other universities have been working with Kentucky lawmakers to pass legislation that will reduce this rate.
“Jordan [Smith], Vice President Jackie Dudley [and I] made a presentation in Frankfort in regard to the state of Murray State, as well as pension topics that we are faced with today,” Jackson said. “[We] and other universities that are impacted by [KERS] are working on a fix to mitigate this huge liability exposure. If House Bill 171 passes, it would help us to keep the rates lower.”
Because of the urgency of this legislation, Murray State has been working with multiple legislators in Frankfort to find the best solution to this problem. Concerned individuals from both sides of the isle have worked together to develop HB 171.
“House Bill 171 is bipartisan,” said Jordan Smith, director of Government and Institutional Relations for the University. “It is important to note that there is a Republican and Democrat sponsor of it.”
In fact, of the five sponsors of the bill, four are Republican. Seib said having bipartisan support will be especially important with this issue, as the majority of the House and Senate are both Republican.
“We have a divided government in Kentucky with Republicans controlling both the House and Senate with veto-proof super majorities, while the governor is a Democrat,” Seib said. “Governor Beshear proposed a lower employer contribution rate of 67 percent in his budget address, but there appears to be some opposition in the legislature to agencies not being required to help fully fund the retirement system. However, both Democrats and Republicans are looking into ways to decrease this impact on public agencies. The more both parties talk, the more likely we are to get a creative solution.”
Rep. Steve Sheldon, R-District 17, is a sponsor of HB 171. He also agreed the bipartisan nature of the bill may increase its success in the legislature.
“I do think the bipartisan effort helped a lot and certainly shows everyone how we can come together and provide answers for even the most difficult of issues,” Sheldon said. “The Senate I have no feedback from. However, I do believe they will be open to this resolution of a very difficult problem. I would say currently that we have gotten positive feedback.”
On Thursday, Feb. 13, HB 171 passed the Kentucky House with a vote of 90 to 0, including one committee substitute and one floor amendment. It was received in the Senate on Friday, Feb. 14.
“This bill is moving, but we’ve got to make sure that there is an appropriation component too, to make sure the rates are controlled somewhere in [the] range [of] 49, 62 or 84 [percent],” Jackson said. “At this point, we don’t know [what percentage we will receive]. It’s way too early to determine that, but we think that it will have a positive impact on us. We’re hoping that it will bring the rates back down to a manageable level.”
According to the current actuarial analysis of HB 171, the proposed percentage will be 75.18 for universities like Murray State. Non-P1 State Agencies have the best rate at 33.15 percent, followed by Non-P1 State Associations and Corporations at 60.16 percent. However, other state agencies might not fare as well under this bill. Kentucky’s Mental Health Units, Health Department and all other state entities are proposed to pay 90.03 percent, 95.30 percent and 96.08 percent, respectively.
“HB 171 asks state agencies, such as Murray State University, to contribute their portion of the deficit in the pension system along with maintaining contributions for future retirees,” Seib said. “Compared to the proposed 93 percent rate increase, this initially appears to be a slightly better bargain for some agencies but others will have their contribution rate increase beyond the 93 percent rate. This is largely a response to agencies outsourcing/privatizing parts of their agency to decrease payroll and distributing the burden of these contributions based on past pension liabilities for an individual agency.”
Sheldon shared that HB 171 was designed in this manner to ensure that each state entity in KERS is responsible for its own portion of the liability.
“We used this method as opposed to the ‘percent of payroll’ method used previously,” Sheldon said. “This previous method led to several practices hiring subcontracted labor, thereby avoiding paying into KERS’ NH system. This was detrimental to the pensions. We decided this was the only fair way to do it at this point of the juncture. [HB] 171 created some winners and some losers but with the right appropriations, we can bring all this together.”
Though there is a lot of work to do to see HB 171 passed, Jackson remains hopeful that a solution to the KERS problem will be reached.
“I always want to be very positive and hopeful,” Jackson said. “I think that there will be a fix in the legislature of some sort. Will it take us all the way back down to 49 percent and hold the rates where they are today? Possibly. It’s February [and] the session’s not over until April 15 at midnight. There’s a long way between February and April, and we’ve got a lot of work to do.”