Moody’s Investors Service issued a report describing pension legislation passed by the Kentucky General Assembly as “credit negative” for the state. Its analysis said the law pushed some public pension costs into the future and increased the possibility that Kentucky would assume a larger share of obligations in its most underfunded pension plan.
On July 24, 2019, the governor signed legislation approved by both chambers during a special session.
The measure froze pension contribution rates for regional universities and quasi-governmental organizations for the remainder of that fiscal year. It also offered a route for participating employers to leave a plan within Kentucky Retirement Systems and move employees to defined-contribution arrangements resembling 401(k) plans.
The credit analysis differed from the case presented by the governor and Republican supporters, who said the law would offer relief to affected organizations while strengthening the pension system’s financial position.
Moody’s said organizations leaving the most underfunded plan could create a long-term savings opportunity. At the same time, the report noted that the state had indicated it could fund the resulting long-term difference.
The report also identified a possible benefit: discounted withdrawal payments could leave the state in a better position than an organization becoming insolvent because it could not meet rapidly increasing pension costs.
As context, the analysis cited Seven Counties Services Inc., which filed for bankruptcy in 2013 and sought to transfer its pension liability to the state. At the time of this archived report, related legal questions were before the Kentucky Supreme Court.
Democratic members of the General Assembly opposed the measure. During debate, an actuarial analysis was cited as projecting that Kentucky Retirement Systems would receive $827 million less in employer payments.