WKU files suit against state retirement system

Emma Collins

WKU has filed a motion seeking a judgment against the Kentucky Retirement System after the KRS asserted WKU should continue to make retirement payments for former university employees outsourced to a private company earlier this year.

The university asked the Franklin Circuit Court on Nov. 17 to hear the case and to issue a judgment determining whether WKU must continue to contribute retirement payments on behalf of the former employees who now work for the private company Sodexo, Inc.

The issue in question is whether those employees are still considered university employees. Tom Kerrick, an attorney for WKU, said WKU believes the employees work only for Sodexo.

The KRS, however, continues to consider these employees to be university employees despite Sodexo being responsible for hiring employees, creating workplace policies and providing salaries.

“As of July 31, 2016, [the employees] were no longer employed by us,” Kerrick said. “They had their own application process and then Sodexo hired them.”

A statement released by the KRS in response to the university’s legal action said those employees remain employees of WKU and must continue to participate in the state’s pension system.

The disagreement between the two parties began earlier this year. In August, WKU privatized 202 employees in an effort to reduce the 2016-2017 budget after the state legislature approved post-secondary education budget cuts. The change was anticipated to save $745,000.

The employees terminated by WKU had the option to apply to work for Sodexo, a private company which has held the university’s contract facilities management since 1994. The outsourced employees included grounds keeping, building services, waste management and custodial employees. As part of the agreement, all employees who moved to Sodexo received a pay raise and a 401(k).

Despite the privatization of these employees, the KRS insists WKU continue to make retirement payments to the Kentucky Employee Retirement Services on behalf of the former university employees.

The KRS, owner of KERS, also requires those employees to continue to make contributions to KERS as well. Those employees have also been denied the ability to withdraw or rollover the contributions they made to the KRS during their employment with WKU.

“We think it’s pretty clear that these are former employees of WKU, and we have no continued obligation to pay KERS on their behalf nor do the employees have a continued obligation to pay KERS,” Kerrick said.

The KRS views these 202 Sodexo employees as “common law employees” who still work for WKU. In a statement, the KRS said although the university terminated those employees, the individuals continued to work for the university in the same positions they held while employed by WKU. KRS viewed this as an attempt to avoid the obligation to contribute to the pension system, according to the statement.

“Kentucky Retirement Systems believes that these individuals are employees of WKU and therefore active members of the state pension system,” the statement read. “WKU is obligated to pay retirement contributions for these persons.”

Because the KRS considers these employees to still be university employees, it too must continue to make contributions to the KERS despite the employees receiving a 401(k) when hired by Sodexo.

A representative for Sodexo did not return calls requesting a statement from the company.

Kerrick attributed the KRS’s demand to the state’s underfunded pension system. According to the Kentucky Chamber of Commerce pension report, Kentucky’s entire pension system has been called one of the worst in the nation because of the nearly $36 billion deficit. The portion of the pension system WKU employees make payments to has a $10 million deficit.

“Sodexo, being a private employer, certainly has no connection to KERS,” Kerrick said. “The only way KRS can attempt to get some type of contribution from these people would be if they were employees of WKU.”

The decision to seek a declaratory judgment followed several weeks of discussion between WKU and the KRS. Kerrick said the only way to resolve the problem involved going to court.

“We think it’s pretty clear KRS is just not going to agree with our position so our only choice was to ask the court to enter a ruling on it,” Kerrick said.

Ann Mead, senior vice president for finance and administration, said in an email the university has not made any contributions on behalf of those employees to the KERS since the employees began working for Sodexo in August.

Kerrick said the court date has yet to be determined. After receiving notice of the legal action by WKU, the KRS has 20 days to file their answer. Because the motion seeking a declaratory judgment was filed on Nov. 17, the KRS still has time to respond.

Kerrick said the two parties will then meet in an attempt to set a court date. If the KRS and WKU cannot agree on a date, a judge will set the date.

Once the court reaches a verdict, either party will have the option to appeal the decision to the Kentucky Court of Appeals.

Reporter Emma Collins can be reached at 27-745-6011 and [email protected]. Follow her on Twitter at @_emma_collins_.