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.