- Associated Press - Wednesday, June 11, 2014

FRANKFORT, Ky. (AP) - Kentucky’s troubled retirement system will appeal a recent federal bankruptcy ruling that officials fear could threaten the solvency of the state’s $15.7 billion pension fund.

Seven Counties - a nonprofit community mental health center that serves 31,000 people in and around Louisville - filed for bankruptcy because it said it could not afford its payments to the state retirement system. A federal bankruptcy judge ruled last month that Seven Counties could proceed with its bankruptcy and leave the retirement system.

But the Kentucky Employees Retirement System is the worst-funded major public pension system in the country, according to Fitch Ratings. It has an unfunded liability of $17.1 billion. State retirement consultants say if Seven Counties leaves without paying its share of the liability, it would force other participants - mostly taxpayers - to pay an extra $1 billion over the next 20 years. And if all 13 community mental health centers leave the system, it would cost an extra $2.4 billion over 20 years.

That’s why the Kentucky Retirement System board of trustees voted unanimously to appeal the bankruptcy ruling on Wednesday.

“There were good legal and other reasons for the decision to appeal or pursue an appeal, including trying to ensure the solvency of the trust and the rights of the members,” said Kentucky Retirement Systems Executive Director William Thielen.

The Kentucky Employees Retirement System is one of five retirement plans run by the Kentucky Retirement System. It includes state workers, non-teaching staff at public universities and employees at public health departments - including the state’s 13 community mental health centers. These centers are quasi-government entities that joined the system decades ago after an executive order from the governor.

But as the cost to stay in the retirement system increases, some of these health centers have tried to leave the system, saying they would have to close their doors if they are forced to stay.

“”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,” Tony Zipple, Seven Counties president and CEO, said in a news release. “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.”

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