Lawmaker Comes Out in Support of Seven Counties in Kentucky Pension Dispute

Video courtesy of CNJ2

Pension360 has previously covered the story of the Kentucky-based non-profit, Seven Counties Services, leaving the Kentucky Retirement System due to the increased contributions that would have been required from the group to stay in the system.

A judge ruled last month that Kentucky-based non-profit Seven Counties Services could legally remove itself from the state’s pension system. But lawmakers weren’t happy with the pension obligations—allegedly to the tune of $90 million—that the organization was leaving behind.

In response, lawmakers chose not to renew Seven Counties’ contract with the state.

“This sends a signal that we are not happy with an agency that contracts with the state and leaves us a bill for $90 million,” said Rep. Brent Yonts, D-Greenville.

But at least one lawmaker says Seven Counties is getting the short end of the stick in the situation.

“Going forward they should be allowed to continue the good works they’ve always done,” said Rep. Julie Raque Adams, R-Louisville.

She also defended the non-profit against claims that they were leaving the system with a massive lump of pension debt.

“I think that the $90 million is in dispute as well. Seven Counties has made every single contribution required of them to this point — before they had to file for bankruptcy,” Adams said. “The problem is we have these agencies that are so vital to our most vulnerable citizens, because you can’t pay 40 cents of every dollar into a pension system and think they’re going to be able to keep serving the most vulnerable in our communities.”

Watch the full video of the exchange above.

A great refresher of the lead-up to this situation, from Leo Weekly:

Seven Counties was one of many nonprofits allowed to join KRS over the past few decades, hoping to lure qualified employees who would overlook meager salaries due to the security of a good pension after retirement.

Up until 2006, this arrangement appeared to work, as the employer contribution rate for pensions was only 5.9 percent of payroll. However, after a decade of Frankfort severely underfunding the required employer contribution, the growing unfunded liability of KRS — especially the Kentucky Employee Retirement System, which houses those nonprofits and is now the worst-funded public pension in the country — led to ballooning costs. By 2012, the contribution rate grew to 20 percent; last year it was 27 percent, and for the current year, it is almost 39 percent.

While the pension reform legislation SB 2 passed in 2013 aimed to solve this crisis by requiring full payment by employers, for nonprofits such as Seven Counties, it only exacerbated the problem. Unable to make such pension payments and stay afloat financially, they declared bankruptcy and filed suit to pull out of KRS. In May, the judge ruled in their favor, saying that the state is obligated to pay out KRS pension benefits to the employees of Seven Counties who paid into it.

Seven Counties Services was granted leave from the pension system in June through bankruptcy proceedings as their portion of the pension payments grew to nearly 40 percent of payroll. In the 2014 budget process the General Assembly provided $19 million to other mental health agencies — not counting Seven Counties — to help them meet increased pension costs.

The Kentucky Retirement Systems actuaries estimate that Seven Counties owes roughly $90 million in liabilities to the system.

Pension360 will keep you updated on subsequent developments.

Kentucky Ends Contract With Non-Profit Looking to Get Out of State Pension System

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Last month, a judge ruled that Kentucky-based non-profit Seven Counties Services could legally remove itself from the state’s pension system. But lawmakers aren’t happy with the pension obligations—allegedly to the tune of $90 million—that the organization is leaving behind.

Seven Counties, a group that provides fostering and other family services, filed for bankruptcy in 2013, and as part of the proceedings they were hoping to get out of Kentucky’s pension system to avoid increasing contributions. The judge allowed the maneuver.

But now, angry lawmakers seem to not want the organization in the state at all. They chose not to renew Seven Counties’ contract with the state. From the Courier-Journal:

Prompted by angry legislators, state officials agreed Friday to jettison a $3.7 million contract with Seven Counties Services as the agency continues efforts to exit Kentucky’s underfunded pension system.

The contract provided family preservation services in the Louisville area, using in-home counselors to help families in crisis with the aim of keeping children at home or reuniting them with parents.

It will remain effective through Oct. 31 as families and children are transitioned, and officials “will move with all due haste” to execute a contract with a new provider, according to a letter from the Cabinet for Health and Family Services.

Seven Counties has provided the services for decades, and warned that cancelling the contract would harm at-risk children and around 300 families that participate in the program.

But last week, the Government Contract Review Committee rejected a proposal to renew the deal for two more years after lawmakers cited concerns over Seven Counties’ high-profile bankruptcy case.

Lawmakers are concerned that if the Seven Counties ruling stands, other state agencies will rush to get out of the state’s pension system. That would mean less contributions coming into the system.

From WFPL:

The state would have to cover $2.5 billion in unpaid pension obligations, Kentucky Retirement Systems executive director Bill Thielen said.

“The actuaries have determined it would increase the contribution rate over a 20 year period, it would ratchet up a little bit each year over 20 years about 6.5 percent, which would amount to about $2.4 billion of additional moneys over the 20 year period that would have to be picked up by the remaining employers in the system,” Thielen said.

In that vein, the contract non-renewal sets a precedent for other groups looking to follow in Seven Counties’ footsteps: if you leave the pension system, you leave the state too.