Major Changes to Kentucky Retirement Systems Proposed

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On October 18, 2017, Governor Bevin released a 505 page bill intended to address and reduce the presently unfunded liabilities within the Kentucky retirement systems. Should it become law, this bill would make substantial changes to the Kentucky Employee Retirement Systems (“KERS”) and County Employee Retirement Systems (“CERS”). The corresponding retirement health care, disability, and death benefits of the aforementioned plans would also be impacted. While the bill is still under review by experts and legislators to comprehend the entirety of the proposed changes, the 505 page document will substantially impact all Kentucky retirement plans.
One section of the bill has targeted the issue of “pension spiking.” Pension spiking, or salary spiking, occurs when employees use their uniform and equipment allowances, compensatory time, and sick leave to increase their salary just prior to retirement. This causes a “spike” or inflation of the employee’s compensation just prior to retirement, which in turn increases the employee’s retirement benefits. As this has become common practice in many Kentucky retirement systems, this new bill could seriously impact such practices.

Another section within the bill addresses the ability of an employer to voluntarily cease participation in KERS or CERS. In order to be eligible to do so, an employer must be able to meet certain requirements, such as paying for an actuarial study on the cost of discontinuing participation in such system. Following such actuarial study, the employer would pay a lump sum to the system representing the full actuarial cost of the benefits accrued by its current and former employees, as determined separately by the pension fund and the insurance fund.

The sections discussed above are just two (2) of hundreds of changes that the bill proposes. Accordingly, this bill and its proposed changes will continue to be major topic of conversation throughout the Commonwealth in the coming weeks. It is unknown yet when the Kentucky Legislature will convene to review and vote on the bill. However, in preparation of such, public entities currently enrolled in these affected plans should begin investigating how this new bill could impact them. For any questions or concerns regarding these changes, please contact our offices.

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