House-approved pension bill stabilizes costs for WKU

House Bill 358 is intended to help address the increasing cost of participating in the Kentucky Employee Retirement System for many Kentucky colleges like WKU. In a 76-21 vote, Kentucky’s House of Representatives approved the amended bill on Feb. 27, and the Senate Standing Committee on State and Local Government planned to discuss the bill on Monday.

Nicole Ziege

A bill recently approved in Kentucky’s House of Representatives could help stabilize WKU’s pension obligations, provide a choice for university employee retirement benefits and postpone a dramatic cost increase for the university next year.

House Bill 358 is intended to help address the cost of the Kentucky Employee Retirement System and provide retirement system options to higher education institutions and their employees. The bill also declares an emergency regarding the potential drastic financial increase Kentucky’s public universities face with their employer contribution costs.

KERS is one of two state retirement systems WKU currently participates in, the second being the Teachers Retirement System.

Participating in KERS, the current employer contribution rate for Kentucky’s public universities is about 49.5 percent of each employee’s salary. These public universities include WKU, Northern Kentucky University, Eastern Kentucky University, Morehead State University, Kentucky State University, Murray State University and the Kentucky Community Technical College System.

In the last fiscal year, WKU’s costs to KERS under this rate totaled about $9.7 million.

However, WKU’s employer rate to KERS could increase from about 49.5 percent to 83.4 percent, an increase of $7 million next year.

The bill postpones the proposed rate increase for another year and allows participating universities to receive a 25-year payout requirement for the un funded pension liability.
In a 76-21 vote on Feb. 27, the House

approved the amended bill. It moved to the Kentucky Senate Standing Committee on State and Local Government on March 6 and was scheduled for discussion on Monday.

Rep. James Tipton, one of the bill’s 19 sponsors, said the bill was created after listening to concerns of the public universities that participate in KERS over the potential increased costs.

“I think we understand that we have a severe pension crisis in the state,” Tipton said. “We have to start somewhere, and we have to create a path forward that’s feasible. Our goal is getting something passed this session if at all possible.”

Under the bill, the universities can voluntarily cease participation from KERS and would then need to follow certain requirements in place of their participation. The universities would need to create their own alternative retirement programs, which would need a voluntary defined contribution plan similar to a 401(k).

The effective cessation date for universities that choose to leave the program would be June 30, 2020, according to the bill.

WKU has already created its own alternative retirement system, known as the optional retirement plan, and eligible TRS employees may choose the plan as an alternative.

At most state universities, faculty have chosen to be in Kentucky’s TRS, which is in better financial standing than KERS. TRS has about 57.7 percent of the money it needs to provide promised pensions compared to 16 percent for KERS.

Many university staff employees in Kentucky belong to KERS. Due to the system being underfunded, employers like WKU must pay increasingly large amounts of money to continue participating in the program, according to the Lexington Herald-Leader.

President Timothy Caboni discussed the bill in a statement to the university when it was filed in the House on Feb. 13. He said one of the most important aspects of the bill was how it protected the current participants in KERS and provided them with a choice.

“Employees, both vested and non-vested, will have the option to remain with KERS and to accrue retirement benefits for the remainder of their WKU employment,” Caboni said in the statement. “For those employees who believe it to be in their best interest to cease participation with KERS, they will have the option to change to the ORP [WKU’s optional retirement plan]. This option could especially be of interest to employees having less service in KERS.”

Caboni later praised the bill on Twitter after it passed out of the House on Feb. 27.

“This bill will help create more stable and predictable pension contributions for our universities,” Caboni said in the tweet.

The bill would only affect universities that choose to stop participating in KERS.

Ann Mead, senior vice president for finance and administration, said in an email WKU’s financial obligation to KERS was already significant with the current 49.5 percent employer rate.

“While we won’t know until we receive the calculation, we believe this will be financially beneficial to WKU without hurting our recruitment of new employees,” Mead said in the email.

News reporter Nicole Ziege can be reached at 270-745-6011 and [email protected]. Follow her on Twitter at @NicoleZiege.