Caboni addresses potential changes to pension system, effects on WKU

Monica Kast

With the crisis of Kentucky’s pensions ever looming, President Timothy Caboni said WKU is looking at the potential implications changes to the pension system may have on current and future employees. 

In an email, sent to faculty and staff, Caboni said “we must recognize some change is likely inevitable, and it is better for us to engage proactively in a conversation with policy-makers as they wrestle with these very complex issues rather than waiting for them to make their decisions.”

“To that end, representatives from the six public universities and the KCTCS system whose employees are impacted by changes to the pension systems have been working on a set of principles that we agree are in the best interests of our institutions and our employees,” Caboni said. “The collective position advocates for no change for current employees.”

According to the email, this may mean that all new hires will be using a “403(b) type defined contribution plan, which is consistent with what many public universities…currently offer.”

Caboni also said WKU’s “highest priority is protecting those employees who are close to retirement from changes for which they have insufficient time to plan,” and WKU “will be steadfast in this position on behalf of our employees.”

Caboni also wrote about the Kentucky Employees Retirement System and Kentucky Teachers’ Retirement System, saying “the current situation…is unsustainable.” Caboni said because of rising percentages of university contributions to retirement programs, other areas on campus, including “tuition revenue and state appropriations,” are going toward contributions to pension.

“Without substantive reform, we soon may find ourselves in the untenable position of cutting campus budgets to cover our pension obligations,” Caboni said. “Further, we should not balance the state pension systems on the backs of parents and students who already are shouldering the majority of the burden of their public higher education costs.”

At the end of his email, Caboni said recommendations from the state pension consultant are only recommendations and have not actually been implemented, and said the pension conversation will be ongoing at WKU.

“Ultimately, any changes made to the existing pension systems will be decided in the legislative process,” Caboni said. “This important conversation will be ongoing, and our collective cooperation and communication will be important as we work toward an outcome that ensures a sustainable path forward for all.”

Under the current retirement plan, “all full-time and certain part-time employees” were required to enroll in one of three retirement plans, according to the WKU Retirement Manual.

Depending on their employment status, a WKU faculty or staff member could enroll in the Kentucky Employees Retirement System, the The Kentucky Employees Retirement System – Hazardous Duty Coverage, or the Kentucky Teachers’ Retirement System. Other options include enrolling in the Defined Contribution Plan or the Optional Retirement Plan.

The current pension system in Kentucky has recently come under scrutiny by Governor Matt Bevin, who has declared pension in Kentucky to be in a state of “crisis.”

According to a website run by Bevin’s office, Kentucky currently has over $64 billion in unfunded pension liability and over $15,000 of pension liability for each Kentuckian.

The website also says that by 2022, the Kentucky Employees Retirement System – Hazardous Duty Coverage will run “completely out of money.”

“I think we all know that the pension is in trouble here in Kentucky,” Bevin said in a video posted to the Kentucky Pension website. “Especially in certain…plans, frankly to all of them, but to varying degrees, run the risk of becoming insolvent, and if they were to become insolvent, the checks literally would not come. That’s a very real risk.”

A special legislative system will be held in October to make official changes to the state-wide pension plan for state and local government employees, including teachers and university employees.

“We are going to save the pension system,” Bevin said. “I was grateful for the unified agreement to the fact that we are going to save the pension system. We’re going to do everything in our power to do exactly that.”

Bevin added that the government has a “legal and moral obligation” to those who will draw pension, and they “intend to meet that” obligation.

Caboni’s email can be read in full here:

Dear Fellow Faculty and Staff:

 

The state’s pension consultant presented their report on recommendations for solving the state’s pension crisis to the Kentucky Public Pension Oversight Board last week.  The recommendations were covered broadly in the media, sparking debate on all sides.  Our Human Resources team is studying carefully the full report and its potential implications for our current and future WKU employees.  We also are working to understand the financial effects on the University.

 

Three points are critical for WKU in this discussion as we work to ensure that our people and programs thrive.

 

First, our highest priority is protecting those employees who are close to retirement from changes for which they have insufficient time to plan. While we will have to evaluate each proposed change on its overall effect, we will be steadfast in this position on behalf of our employees. 

 

Second, the current situation with the KERS and KTRS pension systems is unsustainable, both for the Commonwealth and for WKU. Employer contribution rates have risen dramatically in recent years, and the decisions about these increases are out of our institutional control.  For example, the current KERS portion of an employee’s salary paid by the University is 49.47%, and that amount is proposed to increase to 84.06% next year.  Retirement costs along with other university-sponsored benefits currently result in total fringe benefit expenses approaching 100% of pay, meaning that an employee with a $35,000 salary in reality equates to nearly $70,000 in total compensation.  The net result of this unfunded mandate is that we allocate tuition revenue and state appropriations to pension contributions rather than to salary increases and other strategic priorities.  Without substantive reform, we soon may find ourselves in the untenable position of cutting campus budgets to cover our pension obligations.  Further, we should not balance the state pension systems on the backs of parents and students who already are shouldering the majority of the burden of their public higher education costs. 

 

Finally, we must recognize that some change is likely inevitable, and it is better for us to engage proactively in a conversation with policy-makers as they wrestle with these very complex issues rather than waiting for them to make their decisions. To that end, representatives from the six public universities and the KCTCS system whose employees are impacted by changes to the pension systems have been working on a set of principles that we agree are in the best interests of our institutions and our employees.  The collective position advocates for no change for current employees.  However, for new hires, we believe we can best manage with a 403(b) type defined contribution plan, which is consistent with what many public universities, including UK and UofL, currently offer.   

 

It’s important to remember that the consultant’s recommendations are just that – recommendations.  Ultimately, any changes made to the existing pension systems will be decided in the legislative process. This important conversation will be ongoing, and our collective cooperation and communication will be important as we work toward an outcome that ensures a sustainable path forward for all.

Thank you.

Timothy C. Caboni 

News editor Monica Kast can be reached at 270-745-6011 or [email protected]