State and local government retirees younger than 65 will have to pay more to keep dependents on their health plans after the Kentucky Retirement Systems cut a costly subsidy.
The move was unanimously passed at Thursday’s board meeting, and officials and trustees say it will save KRS roughly $20 million per year. KRS, which oversees pension plans for state and local government workers, faces an unfunded liability last estimated at $19.2 billion.
In fiscal year 2012, KRS spent $19.6 million covering some of the costs for dependents on retirees’ health insurance. That’s up from $19.2 million the previous year, according to KRS figures.
The cut didn’t come lightly. KRS interim General Counsel Jennifer Jones and attorney Brian Johnston of Kansas City-based Polsinelli Shugart, who specializes in employee benefit law, determined that the subsidy fell outside KRS’ inviolable contract with the state.
“I was secretly hoping this would be part of the inviolable contract and that would take care of the issue,” said Personnel Cabinet Secretary Tim Longmeyer, a KRS trustee. “If it isn’t and it’s not budgeted, I don’t think my fiduciary duty would allow me to provide funds that are not part of the inviolable contract.”
KRS has authority in the biennium budget to discontinue the subsidy, which trustees say has gone unfunded by the General Assembly since 2006.
The subsidies first took effect when the legislature passed health insurance reforms to reduce out-of-pocket costs for retirees and dependents in 2004. KRS received $4.6 million from the General Fund in fiscal year 2005 and $11.9 million the next year, the retirement systems say.
KRS Chairman Thomas Elliott said he felt trustees were “hamstrung” by the multi-million-dollar decision.
“We’re trying to fund something without money, and ultimately it’s the retirees who need to be putting the pressure on the legislators to actually fund it or let them force us to do it,” Elliott told the board.
With the subsidy unfunded and not part of the inviolable contract with retirees, trustees said any money used to subsidize dependent health care would take away dollars from future retirees.
“If we continue to pay this, it wouldn’t be an appropriate, in my mind, use of our fiduciary duties,” Trustee Randy Overstreet said.
In other action Thursday:
>KRS set the ballot to elect two new County Employees Retirement System representatives. Ballots will be mailed to CERS members Jan. 11 and are due March 1.
Eleven applied to represent CERS, and trustees whittled the list to five.
Trustee Vince Lang, who has served on the board since 2005, will seek re-election along with Edwin Davis, a former trustee and retired police sergeant; Richard Johnstone, retired deputy mayor in Louisville; Betty Pendergrass, retired treasurer for Nelson County Fiscal Court; and David Rich, retired sergeant with the Louisville Fire Department.
The board also started the process to fill a CERS seat vacated by Robert Wilcher, who resigned in May for health reasons.
KRS Executive Director William Thielen said five have applied for the vacancy, some of whom also filed for the upcoming CERS election.
KRS will invite the five candidates to the board’s retreat at Louisville’s Brown Hotel in early October for interviews.
>Chief Investment Officer T.J. Carlson announced KRS has been fully reimbursed the $100 million it invested in the failed Arrowhawk Capital Partners hedge fund.
KRS initially projected to earn an extra $1 million on the deal, but that expectation was lowered to $400,000. KRS received just $130,000, Carlson said.
>Carlson also presented an updated placement agent disclosure form in light of new requirements that the financial middlemen who want to do business with KRS register as executive branch lobbyists.
“We added this not because it adds clarity on what we have to do, but we wanted to make sure anyone who pulls this up on the website has a clear understanding of the processes and tools they need to comply with these ethics commission rules,” Carlson told the board.
The disclosure form now lists directions, contact information and links to materials managers and agents will need to register as lobbyists and comply with the new law.
Placement agent involvement in KRS investments were under scrutiny last year after a state audit found the agents, who find funding sources for investment opportunities, were scheduled to make $11.6 million off KRS deals.