Moody’s Investors Service has issued a report calling the new pension legislation passed by the Kentucky General Assembly two weeks ago “credit negative” for the state, as it pushes public pension costs into the future and increases the chances that the state will be responsible for a larger share of its worst-funded pension plan.
On July 24, Bevin signed legislation that was passed by both chambers of the General Assembly during a special session called by the governor.
The bill not only froze the pension contribution rate for regional universities and quasi-governmental organizations for the rest of the fiscal year but provided incentives for such employers to buy their way out of their pension plan in the Kentucky Retirement Systems (KRS) and move employees to 401(k)-style plans.
The August report of the credit rating agency comes despite Bevin and Republican proponents of the legislation touting the bill as providing relief to those quasi groups and strengthening the financial health of the state’s notoriously underfunded pension system.
The Moody’s report notes that while such quasi groups could generate a significant “long-term savings opportunity” if they withdraw from the worst-funded KRS plan and their employees are moved out of that plan, “the state has signaled its intent to fund the long-term difference.”
Despite the credit negative report on the legislation, it does add that securing discounted payments from quasi groups buying out of the system would be a more beneficial outcome for the state compared to the possibility of those groups declaring bankruptcy due to not being able to meet their rapidly increasing pension costs.
The report cited the case of Seven Counties Services Inc. — a group that filed bankruptcy in 2013 and sought to shift its entire pension liability onto the state — which is currently being considered by the Kentucky Supreme Court.
The Moody’s report noted that the credit negative declaration does not connote an official change to Kentucky’s credit rating or outlook, as “it is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer.”
Every Democratic member of the General Assembly voted against the pension legislation last month, with House Minority Leader Rocky Adkins citing an actuarial analysis showing that KRS would be shorted $827 million in employer payments.