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. 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.
“We are very relieved to have the reprieve of freezing the contribution rate at 49.47 percent compared to the dramatic increase we were facing,” said Marcie Rein, director of the Whitley County Health Department.
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.
“We have not made any decisions about whether to stay in the system or to leave,” said Rein. “They have released some dates that will impact our decision-making. First, we must request an estimate from KRS regarding the cost of cessation. Those estimates will not be made available until between January 31, 2020, and February 28, 2020. I believe the Board of Health will want to review that estimate before making any decisions. We must then notify KRS by submitting a resolution from the Board of Health, between April 1, 2020 and April 30, 2020.”
When asked what she and her staff will do until then, Rein said, “We are conducting a community health assessment and assessing how our activities fit within priorities outlined in the Public Health Transformation rolled out by Commissioner [Jeff] Howard. Our [hope] is that there are resources to meet the needs and priorities of our community. It is very stressful for staff to work within the uncertainty that this pension issue brings. They continue to work hard to serve this community in spite of that uncertainty. I am incredibly proud of the work we do at the health department. I want to be able to take care of the staff and continue to serve our community while maintaining a financially stable health department.”
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.
“While we have much work yet to do in addressing our $60 billion public pension crisis, HB 1 represents a positive step forward," Bevin said. "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 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.
Jeff Howard, who recently stepped down as Department of Public Health Commissioner for a White House fellow position, 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.