Gov. Andy Beshear’s budget plan would result in Kentucky Retirement Systems getting tens of millions of dollars less in pension contributions than it had expected during each of the next two fiscal years, aggravating the state pension system’s $14.2 billion unfunded liability, KRS officials told lawmakers Thursday.
KRS Executive Director David Eager put the shortfall at $83 million a year in his public testimony. Later, the governor’s office challenged that estimate and said the correct shortfall would be $25 million a year.
Senate Majority Leader Damon Thayer, R-Georgetown, said lawmakers will study this part of the governor’s budget plan in coming days.
“This is obviously something we’ll have to look at,” Thayer said. “We don’t want to accidentally under-fund the pensions.”
Beshear’s budget would cap at 67 percent of payroll the Fiscal Year 2021-22 pension contribution rates for regional universities and dozens of agencies that provide public services on state contract, such as local health departments and regional mental health nonprofits. Their pension contribution rates were scheduled to explode from a previously capped 49 percent to the 93 percent that state government will be paying.
Beshear included roughly $100 million in the two-year budget to help subsidize partial pension relief for these public employers, most of which are struggling just to cover their existing pension costs. The General Assembly last summer passed a law to encourage these agencies to quit the pension system, but so far, none are applying to do so.
At the state pension system, the difference between these agencies paying for thousands of employees at 67 percent and at 93 percent would be $83 million a year, Eager told the House budget subcommittee on higher education at a hearing on Thursday.
“That would be $83 million a year that is not going into the retirement system. So at some future date that would probably have to be made up?” state Rep. James Tipton, R-Taylorsville, the panel’s chairman, asked Eager.
Eager agreed. He said that GRS Consulting — the pension system’s actuarial consultants — already has warned KRS that past years of subsidizing the regional universities and other agencies to keep their rates artificially lower have left a hole in the unfunded liability that forces rates to go that much higher for the rest of state government.