Request By:
James A. Moore, Chairman
Frankfort Electric & Water Plant Board
P.O. Box 308
Frankfort, Kentucky 40602
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Martin Glazer, Assistant Attorney General
You seek an opinion of this Office as to whether the Frankfort Electric & Water Plant Board can convert from its present pension system for employees, authorized by KRS 96.180, to the County Employees Retirement System (CERS), pursuant to KRS 78.531.
You state that some of your employees and board members believe that they would have an improved pension system despite the fact that presently the employees contribute nothing [the Plant Board pays all the contributions] whereas, under CERS, each employee must contribute 4% of his gross salary into the system.
You ask:
1. Can the Frankfort Electric and Water Plant Board Pension Plan be converted to the County Employees Retirement System if a quorum is present and by a majority of board members present? (KRS 96.174)
2. Are there any known legal problems involved? If so please enumerate.
The City of Frankfort has already elected CERS coverage. Other local independent agencies so covered are:
1. Franklin County Fiscal Court
2. Frankfort Municipal Sewer Board
3. Franklin County Board of Education
4. Frankfort Independent School System
5. Franklin County Library.
The Plant Board, being a separate independent governmental agency, did not previously elect to come under CERS.
In OAG 79-207, we advised that the City of Winchester's policemen and firemen, who did not elect to convert to CERS when that City converted and within 30 days of their members' return to active service, could not later convert to CERS. That opinion was based partly on language then in KRS 78.540(3) which provided:
Notwithstanding any other provisions of this section, membership in the system [CERS] shall not include those employes of a county who are members of some other state, county, or local retirement system supported in whole or in part by public funds.
Subsection 3 of KRS 78.540 was repealed in 1982 [Chapter 423, Section 16, 1982 Kentucky Acts] and, therefore, the rationale for that part of OAG 79-207 is no longer on the books.
Thus, in our opinion, the Plant Board could, by resolution, choose to participate in the CERS.
Once CERS coverage for the Plant Board employees is accepted, the Plant Board will need to decide whether to start coverage from that date forward, or go back to July 1, 1958, (the date CERS was started) and pick up coverage for all present employees from the date they began, not beyond July 1, 1958. See KRS 78.530(3). If the Plant Board does not decide to pay past employment, the employees can elect to buy their back employment.
In our view, the cheaper method would be to convert as of the new acceptance date.
However, the Plant Board will need to maintain the old pension fund for those employees now retired or who have vested interest in the old fund and who would receive a pension on such funds when they become eligible. (KRS 78.531(3)). Since none of the old monies were contributed by employees, there would be no refund to them for such contributions into the old system.
You might consider another method of dealing with the old retirement system, and that is the buying of an insurance annuity for each employee who is now retired or who has a vested interest in the old system. Such annuity would pay each one the amount he/she would have received under the old pension at the time he/she became eligible. That way, the Plant Board could do away with a need for maintaining two simultaneous retirement systems.
You may need to consult with the federal Internal Revenue Service concerning the old system. If you have more specific questions, we suggest you contact the General Manager of the CERS.
Since OAG 79-207 was partly based on a statute that has been amended to repeal subsection 3 of KRS 78.540, so much of OAG 79-207 which deals with KRS 78.540(3) is modified accordingly.