The Kentucky Retirement Systems will appeal a federal bankruptcy court ruling that allows Seven Counties Services to continue bankruptcy proceedings and leave the underfunded pension plan for state employees.
The KRS Board of Trustees unanimously voted after spending about three hours behind closed doors Wednesday to challenge U.S. Bankruptcy Judge Joan Lloyd’s May 30 order stating that Seven Counties is not a governmental agency and, thus, can seek Chapter 11 protection and sever ties with KRS.
The $15.7 billion pension system, however, has argued that other employers in the Kentucky Employees Retirement System, which faces $10.4 billion in unfunded liabilities and has a 23.2 percent funding ratio, would shoulder $90.7 million in liabilities accumulated by Seven Counties’ employees and retirees. Seven Counties’ exit would drive up projected employer contributions from 33.49 percent to 36.24 percent in fiscal year 2033, KRS claimed in bankruptcy court.
High-ranking politicians, such as Democratic Gov. Steve Beshear and Republican Senate President Robert Stivers, as well as the organization Kentucky Public Retirees, had voiced their hopes the KRS trustees would appeal Lloyd’s ruling since it was issued.
“The board was advised by our attorneys, and I think the board felt that there were good legal, practical reasons in terms of protecting the solvency of the trust,” KRS Executive Director Bill Thielen told reporters.
Attorneys with Ice Miller, which has earned about $1.5 million fighting the case on behalf of the KRS, must file a notice with the 6th U.S. Circuit Court of Appeals by Friday and divulge specific issues it will challenge within two weeks afterward, Thielen said.
Gwen Cooper, spokeswoman for Seven Counties, said the non-profit agency is confident Lloyd’s decision will withstand appeal, noting that rising pension obligations threatened Seven Counties’ mission to serve more than 31,000 needy individuals.
“It is unfortunate that the state continues to make this an adversarial process rather than exploring ways we can all work together to solve this complicated problem,” Cooper said in a statement.
“The decision to let Seven Counties exit the KERS is not the problem, it is merely a symptom of the deep problems facing the Kentucky pension system, with or without the action of Seven Counties. It is truly our hope that Kentucky’s leaders will work to reform and sustain the pension system.”
Thielen said to his knowledge KRS has not discussed a deal allowing Seven Counties to leave KERS amicably since Lloyd’s ruling.
He’s unsure whether the case eventually will come before the U.S. Supreme Court.
“I have no idea how far this could possibly go,” Thielen said.
Jim Carroll, co-founder of Kentucky Government Retirees, said his group is “gratified” with KRS’s decision to appeal Lloyd’s ruling.
“As stakeholders, we are pleased that the board had moved to protect the long-term viability of the financially troubled KERS non-hazardous fund,” he said in a statement.