Late in the day on Friday, May 30, 2014, the United States Bankruptcy Court issued an 83 page Opinion in the Chapter 11 proceedings of Seven Counties Services, Inc. (“Seven Counties”).  The Court held that Seven Counties is not a “governmental unit” as that term is defined in the Bankruptcy Code and Seven Counties is therefore eligible to proceed under Chapter 11 of the Bankruptcy Code.  The Bankruptcy Court also held that the relationship between Seven Counties and Kentucky Employees Retirement System (“KERS”) is an “executory contract” and Seven Counties may reject that contract in accordance with the provisions of the Bankruptcy Code, which means that Seven Counties may choose to end its participation in KERS as of April 2013.

We are, to say the least, disappointed in the decision.  If it stands, the decision will allow Seven Counties to not pay some or all of its approximately $90 million dollar share of the unfunded liability that exists in KERS.  This would mean that the remaining participating employers in the KERS system – principally the Commonwealth of Kentucky – will have to pay additional contributions in order for KERS to have sufficient assets to pay the retirement benefits already earned by KERS nonhazardous retirees, inactive and active members, including the nearly 1,000 Seven Counties employees who will be directly impacted by the decision because their participation ceased in April 2013.

KRS executive staff and KRS attorneys are currently examining the Opinion.  The KRS Board of Trustees will be advised in the very near future of the full implications of the ruling and the options available to KRS to appeal the decision.  Currently, it is our view that Seven Counties’ employees will be entitled to the service credit and associated retirement benefits earned until the date Seven Counties filed for bankruptcy protection.  Likewise, retirees with service credit earned through employment with Seven Counties will be entitled to continue receiving their retirement benefits.  As developments occur in the case, we will keep the membership informed.



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