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CERS

Preparing for "a game changer"
 
Kentucky School Advocate
September 2017
 
By Madelynn Coldiron
Staff writer
Top 10 principal participating employers in CERS Kentucky’s school boards need to brace for a financial jolt that will hit their budgets being drafted for the 2018-19 fiscal year.

The source of the expected blow is the County Employees Retirement System, which covers school district classified employees, in addition to city and county workers. In July, the Kentucky Retirement Systems Board, which encompasses CERS in addition to the state systems, established conservative new assumptions for investment earnings and payroll growth – combined, that means CERS employers will need to kick in much larger contributions toward their employees’ retirement.

“It’s causing quite a bit of anxiety from a budget perspective,” said Simpson County Superintendent Dr. James Flynn.

“We have seen some preliminary estimates that the increase in employer contribution might be up to approximately 26.4 percent of payroll, compared with the current 19.2 percent of payroll,” said Eric Kennedy, KSBA’s governmental relations director. It works out to 37.5 percent more than districts are paying now.

That, said Flynn, “would be a huge cost and that would be an annual recurring cost. That would be a game changer.”

“I hope every single district takes this into account when they adopt their tax rates this year,” Kennedy said. “So many of them were already facing serious financial trouble as it is. They need to build up their reserves or not drain them if they haven’t already drained them and they need to see this coming.”

Even so, that may not be enough in districts such as Warren County Schools. “In talking to our financial officer, it will hit us at about $800,000 (above what it’s paying now),” said Warren County school board Chairman Kerry Young. “If we did a 4 percent tax increase, that only generates a million dollars. And then our step increases for next year – no raises – is $600,000. So between the CERS and our step increase, if we raise our taxes 4 percent we’re still $400,000 to the negative.”
Top 5 participating employers of CERS In adopting the new assumptions, the KRS board rejected requests to phase them in, making it more difficult for school districts to absorb the hit all at once. “If you phase it in, then you’ve got more time to plan and adjust and make those adjustments without hurting services to kids,” Flynn said. “Obviously we’re going to have to make some cuts to be able to account for that. And when you make cuts, you’re taking away things from kids somehow, some way, and there’s going to be some services that somebody’s providing that are going to have to go away.”

However, the prospect of cuts that might include personnel could not only harm services to students, but could also lead to a Catch 22 scenario that impacts the health of the CERS, Kennedy noted. “If you have layoffs and the payroll falls, then fewer people are contributing less money into the fund and you’re right back where you started,” he said.

CERS separation
On another CERS front, State Rep. Brian Linder (R-Dry Ridge) said separating the CERS from the Kentucky Retirement Systems is part of the discussion as lawmakers prepare for pension reform in advance of an expected special session in the fall.

“If the separation of CERS will happen, it will happen in pension reform – I don’t think that we would do pension reform and then turn around in the next session and try to separate CERS out from KERS,” said Linder, who also is Grant County Schools’ finance director and co-chairs the legislature’s Public Pension Oversight Board. “I do think there’s a lot of support for separating CERS out in the General Assembly, so I do think that’s probably something that’s going to be on the table and discussed vigorously and will have a lot of support when it comes to the final version.”

KSBA “will push strongly for this to be one of the reforms that is enacted in the special session,” Kennedy said. Other groups supporting separation include the Kentucky Education Association, which represents education support personnel, and the Kentucky League of Cities. The idea has taken root because the CERS is better funded than the state employee retirement system. CERS employers, including school districts, by law must make whatever contribution is calculated by the system’s actuaries. The General Assembly, which provides funding for the state system, has no such mandate, which is one reason the CERS is healthier.

Moreover, CERS has the largest portion of assets – about 57 percent of the total amount – in the KRS pension funds, Kennedy pointed out, and pays administrative costs proportionately. And he noted that school classified employees comprise nearly 52 percent of the CERS employees.

“So school boards have a major stake in this,” he said.

A bill for CERS separation did not advance in the 2017 legislature. It proposed a four-year phase-in for the split, with a separate board and staff similar to the way the Teachers’ Retirement System is structured.

Flynn, the Simpson County Schools superintendent, said he’s hopeful a CERS separation will affect the assumptions in a positive way so districts won’t have to contribute as much to the system as projected.

If the CERS is not separated, it could more likely face any benefit cuts the General Assembly might make to the overall KRS as part of pension reform, a blow to recruiting already hard-to-fill positions for school districts, like bus drivers. “We have to have quality benefits to attract employees,” Kennedy said.
Pension fund funding level KSBA “will push strongly for this to be one of the reforms that is enacted in the special session,” Kennedy said. Other groups supporting separation include the Kentucky Education Association, which represents education support personnel, and the Kentucky League of Cities. The idea has taken root because the CERS is better funded than the state employee retirement system. CERS employers, including school districts, by law must make whatever contribution is calculated by the system’s actuaries. The General Assembly, which provides funding for the state system, has no such mandate, which is one reason the CERS is healthier.

Moreover, CERS has the largest portion of assets – about 57 percent of the total amount – in the KRS pension funds, Kennedy pointed out, and pays administrative costs proportionately. And he noted that school classified employees comprise nearly 52 percent of the CERS employees.

“So school boards have a major stake in this,” he said.

A bill for CERS separation did not advance in the 2017 legislature. It proposed a four-year phase-in for the split, with a separate board and staff similar to the way the Teachers’ Retirement System is structured.

Flynn, the Simpson County Schools superintendent, said he’s hopeful a CERS separation will affect the assumptions in a positive way so districts won’t have to contribute as much to the system as projected.

If the CERS is not separated, it could more likely face any benefit cuts the General Assembly might make to the overall KRS as part of pension reform, a blow to recruiting already hard-to-fill positions for school districts, like bus drivers. “We have to have quality benefits to attract employees,” Kennedy said.
 
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