Governor vetoes bill that allows agencies to leave pension system

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FRANKFORT, Ky. (KT) - Gov. Matt Bevin has vetoed a bill passed by the 2018 General Assembly that would phase-in huge pension costs to local agencies and provide a buy-out plan for them.

 

House Bill 362 originally dealt with high school students wanting to pursue a military career and had passed the House in that form.


The Senate modified it into legislation that would allow members of the County Employees Retirement System, which includes city and county governments, schools, regional universities and other quasi-governmental agencies, to phase-in a scheduled July 1 nearly 50 percent boost in pension costs over several years.


It also provided a mechanism for agencies to withdraw from the system.


In Bevin’s veto message, issued Thursday, he said he had no problem with the phase-in relief and encouraged lawmakers to restore that part of the bill when they return to Frankfort April 13-14 for the final two days of the session, but objected to the buy-out provisions, terming them “very problematic,” and the reason for his veto.


“I am concerned that the buy-out provisions will be viewed as ‘credit negative’ by rating agencies if not changed,” he said.  “According to the actuarial analysis of the bill, requiring the KRS to finance the ceasing employers’ annual installments with a zero percent interest rate is a significant benefit to those withdrawing employers, and could potentially be a $2 billion subsidy that must be financed by the remaining employers in the system.”


He said that result in an additional 6-8 percent cost in the annual Actuarial Required Contribution for those who remain, including state government itself; and that the buy-out terms are much more favorable than current law permits.


“Additionally,” the letter states, “there is increase financial risk to the Kentucky Employees Retirement System and CERS that members entities may become financially troubled or cease existence before they have completely financed all their unfunded liability (this is referred to as increased default risk). Therefore, for the sake of fiscal responsibility, I must veto House Bill 362, while reiterating that the General Assembly should work to re-enact the phase-in portion of the bill.”


Lawmakers could either override the veto of HB 362, place the provisions the Governor didn’t object to in another bill that has passed one of the chambers and has had at least one reading in the other chamber, or let the veto stand without a vote.


Sen. Christian McDaniel, R-Taylor Mill, who made the changes to the bill, told the Associated Press that Bevin’s concerns are valid, but noted many agencies that need to leave the system don’t have the money to make those payments.    

 

   

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