RENDERED: FEBRUARY 20, 2026; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals NO. 2025-CA-0688-MR
KENTUCKY PUBLIC PENSIONS AUTHORITY; BOARD OF TRUSTEES OF THE KENTUCKY RETIREMENT SYSTEMS; AND KENTUCKY EMPLOYEES RETIREMENT SYSTEM APPELLANTS
APPEAL FROM FRANKLIN CIRCUIT COURT v. HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 23-CI-01051
GREEN RIVER REGIONAL MENTAL HEALTH MENTAL RETARDATION BOARD, INC. D/B/A RIVERVALLEY BEHAVIORAL HEALTH APPELLEE
OPINION VACATING AND REMANDING
** ** ** ** **
BEFORE: CETRULO, COMBS, AND TAYLOR, JUDGES.
COMBS, JUDGE: This is a declaratory judgment action. The Appellants are: the
Kentucky Public Pensions Authority (“public pensions authority”); the Kentucky Employees Retirement System (“KERS”); and the Board of Trustees of the
Kentucky Retirement Systems. They appeal from a summary judgment of the
Franklin Circuit Court granted in favor of Green River Regional Mental Health
Mental Retardation Board, Inc., d/b/a RiverValley Behavioral Health
(“RiverValley”).
The Franklin Circuit Court determined that the public pensions
authority was equitably estopped from implementing administrative regulations
promulgated pursuant to the provisions of KRS1 61.5991 pertaining to its duty to
audit quasi-governmental employers who participate in KERS and receive a
government-funded subsidy for their contribution to employees’ pension benefits.
The court concluded that RiverValley was entitled to judgment as a matter of law.
After our review, we vacate and remand for additional proceedings.
In 1956, the General Assembly established KERS along with a board
of trustees to administer it. 956 Ky. Acts ch. 35; Kentucky Employees Retirement
System v. Seven Cntys. Services, Inc., 580 S.W.3d 530, 534 (Ky. 2019). KERS
began administering retirement savings plans for the employees of the
Commonwealth, its departments, agencies, and instrumentalities. Id. KERS is
now administered by the Board of Trustees of the Kentucky Retirement Systems, a
statutorily created agency of the executive branch. Id.; KRS 61.645. That
1 Kentucky Revised Statutes.
-2- executive agency promulgates administrative regulations necessary to administer
KERS, and the public pensions authority provides the day-to-day administrative
support required. 105 KAR2 1:001. Pension benefits for the Commonwealth’s
employees are funded through investment of employee and employer contributions
to KERS. Participating employers and employees pay into KERS at a set rate, and
upon retirement, KERS pays out each individual employee’s defined benefit based
upon the number of years served, a “benefit factor,” and the employee’s final
compensation. See KRS 61.510 et seq.
Employer contributions are based -- in part -- upon the number of
individuals providing service to the employer, who are defined as “employees” for
purposes of membership in KERS. KRS 61.675. An “employee” is defined as
someone engaged in regular full-time work with the employer. KRS 61.510(5).
Employers are directed to enroll all “employees” into KERS and to remit required
contributions as calculated. KRS 61.675(3); 105 KAR 1:140. Individuals
providing service who do not qualify as “employees” -- such as independent
contractors or leased employees -- are not required to be enrolled in KERS. KRS
61.510(5); KRS 61.675. Government agencies and quasi-governmental agencies
participating in KERS self-report their qualifying “employees.” And the self-
reported information is used to calculate employers’ required contributions.
2 Kentucky Administrative Regulations.
-3- Before enactment of the statute creating the government subsidy at the
center of this dispute, KRS 61.5991, government and quasi-governmental
employers were not required to report to KERS those individuals providing
services whom the employer did not deem to be “employees.” However, the
public pensions authority was authorized to take corrective action where it
discovered that a participating employer had misclassified individuals who should
have been enrolled as members of KERS.
KERS is authorized to determine whether a government or quasi-
governmental employer is complying with its reporting obligation and to audit
those employers in order to detect compliance, fraud, or any changes in
circumstances that would affect their obligations. KRS 61.685(1)(a), (b). Upon
discovery of any “error” or “omission” in its records, the public pensions authority
“shall correct all system records, including but not limited to membership in the
system, service credit, member and employer contributions, and benefits paid or
payable.” KRS 61.685(1).
The public pensions authority performs an “omitted service”
determination to decide whether an individual is an “employee” entitled to receive
service credits toward pension benefits. KRS 61.552(2); 105 KAR 1:451. Where
the public pensions authority determines that an individual is an “employee” who
was not properly reported by his employer, all contributions “payable by the
-4- employer” for the individual’s omitted service are deemed “delinquent from the
date the employee should have been reported and received service credit[.]” KRS
61.552(2)(f). Once the government or quasi-governmental employer pays the
delinquency, the employee may purchase omitted-service credit to secure pension
benefits for the relevant period. KRS 61.552(2)(a), KRS 61.552(2)(d)2.; see also
105 KAR 1:330.
RiverValley is a quasi-governmental organization established by the
General Assembly in 1967 as a regional community services program pursuant to
the provisions of KRS 210.370 – 210.450. It offers behavioral health services,
substance abuse treatment, and intellectual and disability services to adults and
children. It has locations across seven Western Kentucky counties and operates a
juvenile-adolescent psychiatric hospital in Daviess County. RiverValley’s
participation in KERS is based on executive order and an obligation based in
statute. See Kentucky Employees Retirement System v. Seven Cntys. Services, Inc.,
580 S.W.3d 530, 532–33 (Ky. 2019).
In the 1990’s, RiverValley organized several separate but affiliated
corporate entities. Two of these corporate entities, Acumen Counseling, Inc., and
RiverValley Consulting, supply RiverValley -- on a contract basis -- with
healthcare staff (including physicians, APRN’s, and therapists) and administrative
and executive staff (including its CEO, financial managers, in-house counsel,
-5- information technology director, and human resources management). RiverValley
determined that these individuals were not RiverValley “employees” for purposes
of KERS. Therefore, RiverValley did not report them, enroll them as members of
KERS, or remit employer contributions to help fund their pension plans. Instead,
these individuals were offered participation in a 403(b) plan, a federally created tax
shelter annuity that allows employees to save for retirement by contributing to
individual accounts. Like a 401(k) plan, participating employers may also
contribute to employee accounts.
Since 2015, the General Assembly has allowed quasi-governmental
employers to withdraw from participation in KERS upon: (1) approval by the
Board of Trustees of the Kentucky Retirement Systems; (2) presentation of a
corporate resolution; and (3) payment of the full actuarial costs of pension benefits
accrued by current and former employees. KRS 61.522. However, in 2019, the
General Assembly provided a limited opportunity for participating quasi-
governmental employers to withdraw from KERS without seeking approval from
the Kentucky Retirement Systems Board of Trustees and to pay the costs of its
employees’ pension benefits over time. To withdraw, the employer was required,
among other things, to remit (either by lump sum or in installments) the full
actuarial costs of the benefits that had accrued for current and former employees
enrolled in KERS. The window of opportunity to withdraw from participation
-6- without agency approval was set to expire on June 30, 2021. Employers who
wanted to withdraw were required to submit a board resolution by April 30, 2021,
and to certify that an acceptable alternative retirement plan was being created for
employees -- all of whom would be required to relinquish membership in KERS.
RiverValley considered withdrawing from KERS, and the public pensions
authority provided it with information concerning the costs of doing so.
In March 2021, just before the window to withdraw from KERS
without agency approval closed, the General Assembly enacted KRS 61.5991, a
statutory scheme designed to encourage increased enrollment in KERS.
Government subsidies were to be made available to offset employer contributions
remitted by quasi-governmental employers who made efforts to increase or
maintain the number of employees reported to the system.
As part of the subsidy scheme, quasi-governmental employers were
now required to report individuals providing services who were not enrolled in
KERS but who, if employed directly by the agency, would be entitled to
membership. KRS 61.5991(1)(a). Using this data, the public pensions authority
could calculate an employer’s participation rate by dividing the number of
“employees” participating in KERS by the employer’s entire workforce. The
General Assembly authorized subsidies for employers with sixty percent of their
-7- workforce participating in KERS from 2022 – 2024 and eighty percent from 2024
and beyond. KRS 61.5991(6)(a).
Because tax dollars were at stake, the General Assembly authorized
the public pensions authority to review the accuracy of employers’ reports.
Anticipating that the public pensions authority would identify previously
unreported individuals who would always have been treated as “employees” under
the new criteria, the General Assembly directed it to “ensur[e] that all eligible
employees are being reported and contributions are being paid. . . .” KRS
61.5991(2)(a)1.–2.
Importantly, however, the original enactment limited the collection of past-
due contributions for previously unreported individuals discovered to have been
improperly excluded from membership in KERS. Section (1)(d) provided that “[i]f
[the public pensions authority] determines a person who was not reported to the
system under this subsection should be reported to the system as a regular full-time
employee, [the public pensions authority] shall require the employer covered by
this section to report the employee on or after July 1, 2021, and pay employer
contributions prospectively. . . .” KRS 61.5991(1)(d), repealed 2022 (emphasis
added). The General Assembly directed that the public pension authority “shall
not, notwithstanding any other statute to the contrary, bill the employer for any
-8- contributions or penalties for any services occurring prior to July 1, 2021, for that
specific employee. . . .” KRS 61.5991(1)(d), repealed 2022.
The public pensions authority issued bulletins and instructions to
quasi-governmental employers describing the subsidy scheme; the auditing
process; and Subsection (1)(d)’s cutoff period for unpaid contributions accruing
before July 1, 2021. According to RiverValley, it considered its options in light of
the government subsidies being offered to offset employer contributions to the
pension system and the newly-enacted provisions of KRS 61.5991(1)(d) -- which it
construed to be a permanent safe harbor shielding it from “any bills for employer
contributions or penalties for any services occurring prior to July 1, 2021.” At its
April 2021 board meeting, RiverValley’s board of directors voted to continue its
participation in KERS.
In early 2022, the public pensions authority advised RiverValley and
other quasi-governmental employers that pursuant to the requirements of the newly
enacted statute, it would review submitted materials to determine whether any
individuals now being reported should be reported, going forward, as a regular
full-time employee for purposes of KERS. It explained further as follows:
If it is determined that any person should be reported to the [public pensions authority] as a KERS regular full- time employee, the employer will be required to begin reporting the person as an employee including ensuring the employee contributions are remitted to the [public pensions authority] and pay employer contributions in
-9- accordance with KRS 61.675 effective July 1, 2021 (but not prior to that date).
Critical to this dispute, House Bill 668 was introduced in the 2022
regular session of the General Assembly. The legislation repealed KRS
61.5991(1)(d) in its entirety, eliminating any restriction upon the authority of
public pensions to collect employer contributions for improperly classified
employees for services performed before July 1, 2021. Under Section 4 of HB
668, the General Assembly clarified that the amendment “shall be retroactive to
July 1, 2021.” HB 668 also enacted a new provision that required the public
pensions authority to audit a percentage of quasi-governmental employers subject
to the statute’s subsidy reporting requirements “for the purpose of ensuring that all
eligible employees are being reported and contributions are being paid in
accordance with KRS 61.510 to 61.705.” KRS 61.5991(2)(a). This section
confirmed that the public pensions authority “shall have full power and authority”
to accomplish these audits, “including” its already-existing “authority and power
granted under KRS 61.675 and 61.685[.]” Id. The new law became effective in
April 2022.
RiverValley viewed this change in the legislation as a directive to the
public pensions authority “to get busy checking numbers.” Weeks later, in May
2022, in an effort to increase the number of “employees” it reported to the public
pensions authority (thereby, qualifying for the government subsidy), RiverValley
-10- reported its employee and non-employee information to the public pensions
authority. The public pensions authority “got busy checking numbers.”
Meanwhile, in response to the drastic dramatic changes to the subsidy
scheme, the Board of Trustees of the Kentucky Retirement Systems promulgated
an emergency administrative regulation: 105 KAR 1:451E Section 3(3)(c)(2).
That regulation provided that where the public pension authority determined that a
reported individual was an “employee in a regular full-time position,” the quasi-
governmental employer “shall be responsible for payment of delinquent omitted
employer contributions for all periods of the person’s previous employment by the
quasi-governmental employer in a regular full-time position.” Id.
On September 18, 2022, the public pension authority notified
RiverValley that all the individuals providing services under contracts with
Acumen Counseling, Inc., (268 individuals) and RiverValley Consulting (38
individuals) should be reported as “employees” for purposes of participation in
KERS. To assess the retrospective impact of RiverValley’s decision never to have
reported these individuals as “employees,” the public pensions authority directed
RiverValley to submit information verifying each individual’s past employment
information relevant to determining whether the individuals could purchase service
credit for past periods of employment with RiverValley. If it were determined that
-11- they could, then RiverValley would be liable to pay the delinquent omitted
employer contributions before these employees could purchase service credit.
RiverValley enrolled the 306 identified individuals as participating
members of KERS on September 30, 2022. It provided the requested information
concerning past periods of employment by these individuals on November 10,
2022.
Under the statutory scheme, RiverValley received more than $1.6
million in subsidies for fiscal year 2024. However, the public pensions authority
has not yet (to-date) conducted a retrospective omitted-service determination with
respect to these individuals regarding their employment status or the amount of
delinquent omitted employer contributions due for service years before 2022.
Consequently, RiverValley has not been assessed any delinquent omitted employer
contributions for the 306 individuals. Nevertheless, just days after providing the
required information to the public pensions authority for review, RiverValley filed
this declaratory judgment action in Franklin Circuit Court against the public
pensions authority; the Board of Trustees of the Kentucky Retirement Systems;
and KERS.
At issue are the provisions of 105 KAR 1:451E purporting to enable
the public pension authority to require payment of delinquent omitted employer
contributions from participating quasi-governmental employers pursuant to the
-12- amended provisions of KRS 61.5991. In its petition, RiverValley alleged that the
provisions of that regulation deviated from the statutory provisions and were,
consequently, outside the scope of the administrative agency’s statutory authority.
RiverValley also alleged that it had been deprived of due process by
the public pensions authority and that the provisions of KRS 61.5991 and other
provisions relied upon by the public pensions authority violated Sections 2 and 3 of
the Kentucky Constitution and the Fifth and Fourteenth Amendments to the United
State Constitution. It alleged that the defendants should be equitably estopped
from “creating a window of opportunity for RiverValley to exit the pension system
and then removing those protections and imposing new liabilities . . . once that
window of opportunity had closed.” In the alternative, it alleged that the
defendants were barred by laches because they failed to take timely action to
ensure that the hundreds of individuals identified by the public pensions authority
as RiverValley “employees” were included as members of KERS.
RiverValley sought preliminary and permanent injunctive relief and a
judgment declaring that with respect to the 306 individuals identified by the public
pensions authority, RiverValley could not be made liable for delinquent omitted
employer contributions prior to July 1, 2021.
The defendants answered the complaint in January 2024. Four
months later, RiverValley filed a motion for summary judgment. It argued, in part,
-13- that equitable estoppel applied to prevent any assessment for delinquent omitted
employer contributions for the following reasons:
RiverValley was given the opportunity to escape [KERS] by making $38.4 million lump sum payment by June 30, 2021, or $2.2 million annual payments for thirty years. RiverValley had to choose one of those options and submit a board resolution by April 30, 2021, if it wanted to go that way. At that time, the Legislature was holding out the prospect of subsidies and KRS 61.5991(1)(d) promised that participating [quasi-governmental] employers would not be billed “for any contributions or penalties for any services occurring prior to July 1, 2021.” RiverValley relied upon that assurance when it let the opportunity to exit [KERS] pass.
KERS, the public pensions authority, and the Board of Trustees of the
Kentucky Retirement Systems responded and filed a cross-motion for summary
judgment. They contended that the circuit court was being asked to rule
preemptively -- and as a matter of law -- that the public pensions authority had no
legal authority to assess delinquent omitted employer contributions for individuals
whom RiverValley was legally required to report as “employees” but had not.
Furthermore, they had not yet assessed, invoiced, or attempted to collect any
delinquent omitted employer contributions from RiverValley. Finally, they argued
that the premature challenge to the public pensions authority’s ability to assess
delinquent contributions would ultimately fail on substantive grounds as a matter
of law.
-14- The public pensions authority explained that it had always had express
statutory authority to audit employers to determine whether they were accurately
reporting “employees” and to assess delinquent omitted employer contributions for
persons who were not properly reported and included in KERS. If it were not so,
they argued, Kentucky’s statutory reporting and contribution requirements would
be rendered meaningless. It also rejected RiverValley’s claim that the employer
had acquired a vested right (through the now repealed provisions of KRS
61.5991(1)(d)) to be free of any such assessments based on the temporary
restrictions on efforts to collect delinquent contributions for employees determined
to be improperly classified in the administration of KRS 61.5991’s subsidy-
reporting system. It explained that the provision “was on the books for only a year
before being retroactively repealed” by the General Assembly in 2022: “its brief
enactment occurred well after RiverValley’s conduct that created its liability for
delinquent contributions, and it was already repealed when RiverValley reported
the individuals at issue and [the public pensions authority] determined them to be
employees.”
By its order entered on May 2, 2025, the Franklin Circuit Court
granted RiverValley’s motion for summary judgment. The court concluded that
principles of equitable estoppel prevented the public pensions authority from
assessing the disputed delinquent omitted employer contributions. It reasoned that
-15- the General Assembly held out the subsidies to incentivize quasi-governmental
employers to increase participation in KERS; that RiverValley’s decision not to
exit KERS was influenced by provisions of the subsidy statute that prevented the
public pensions authority from assessing delinquent contributions beyond July
2021; that the public pensions authority -- thereafter -- represented the statute’s
provisions to RiverValley; that the amount of RiverValley’s anticipated liability is
“staggering”; and that the likely assessment imposed by the public pensions
authority does not comport with the intent of the General Assembly to increase
participation in KERS, breaching the promises relied upon by RiverValley. This
appeal followed.
Summary judgment is appropriate where it appears impossible, as a
matter of law, for a party to produce evidence at trial warranting judgment in his
favor. Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 482 (Ky. 1991);
CR3 56.03. We review de novo the circuit court’s decision to grant summary
judgment. Caniff v. CSX Transp., Inc., 438 S.W.3d 368, 372 (Ky. 2014) (quoting
3D Enters. Contracting Corp. v. Louisville & Jefferson Cty. Metro. Sewer Dist.,
174 S.W.3d 440, 445 (Ky. 2005)).
On appeal, the Appellants argue that the circuit court erred by
enjoining the public pensions authority from complying with its statutory
3 Kentucky Rules of Civil Procedure.
-16- obligation to collect past-due employer contributions for the hundreds of
employees that RiverValley failed to report and enroll in KERS. We agree, and
the injunction is hereby dissolved for the reasons that compel us to refrain from
adjudicating this controversy at this junction.
The public pensions authority contends that the circuit court erred by
concluding that RiverValley presented a justiciable issue justifying the court’s
immediate intervention. It argues that the administrative process was interrupted
by the litigation and that, as a result, the necessary omitted-service determination
has not been undertaken; that the amount of RiverValley’s liability -- if any -- has
not been established; that there has not yet been final agency action; and that no
efforts to collect any allegedly delinquent omitted employer contributions have
been initiated. It contends that RiverValley cannot identify any harm it will face if
judicial review is postponed until the agency has been allowed to complete its
work. We are compelled to agree that entry of summary judgment was premature
because the dispute is not yet ripe for adjudication.
Kentucky’s Declaratory Judgment Act, codified in KRS Chapter 418,
is intended to be remedial in nature. Mammoth Medical, Inc. v. Bunnell, 265
S.W.3d 205, 209–10 (Ky. 2008). Its purpose is to make courts more responsive
and serviceable to citizens by way of settling controversies and affording relief
from uncertainty and insecurity with respect to rights and duties. KRS 418.080. In
-17- light of its purpose, the Act’s provisions are interpreted and administered liberally.
Id.
KRS 418.040 provides that in any action in a court of record wherein
it is made to appear that an actual controversy exists, the plaintiff may ask for a
declaration of rights, either alone or with other relief, and the court may make a
binding judgment. However, the party seeking relief pursuant to the statute must
show that an actual, justiciable controversy exists. Proceedings for a declaratory
judgment must not merely seek advisory answers to abstract questions. Mammoth
Medical, Inc., 265 S.W.3d at 209–10 (Ky. 2008) (citing Axton v. Goodman, 205
Ky. 382, 265 S.W. 806 (1924)). Even where a dispute is resolvable by the court’s
interpretation of a pure question of law, an actual claim must be shown to exist.
Nordike v. Nordike, 231 S.W.3d 733, 739 (Ky. 2007).
In order to determine whether a justiciable controversy exists, the
court must consider “both the appropriateness of the issues for decision and the
hardship of denying judicial relief.” Combs v. Matthews, 364 S.W.2d 647, 648
(Ky. 1963). Even where a justiciable controversy is shown to exist, the court has
discretion under the Act’s provisions to postpone adjudication. W.B. v.
Commonwealth, Cabinet for Health & Family Serv., 388 S.W.3d 108, 112 (Ky.
2012) (“KRS 418.065 clearly anticipates that there will be occasions when it will
not be best to address the controversy at the time of the petition[.]”). As a matter
-18- of judicial policy, the court should decline to exercise its jurisdiction where
“proper judicial administration requires that action be deferred by the court until
the agency has acted and the court may then review its action.” Preston v. Meigs,
464 S.W.2d 271, 274–75 (Ky. 1971).
Our review is de novo when determining whether an “actual
controversy” exists. Bingham Greenebaum Doll, LLP v. Lawrence, 567 S.W.3d
127, 129 (Ky. 2018). The court’s exercise of its discretionary power to assume
jurisdiction is reviewed for abuse of discretion. Gwaltney v Commonwealth Bd. of
Soc. Work, 644 S.W.3d 270, 274 (Ky. App. 2022).
While the court did not ultimately reach the issue, it framed the
“primary issue” to be decided as the statutory authority of the administrative
agency to promulgate 105 KAR 1:450E. It concluded that the interpretation of
KRS 61.5991 (as amended) by the public pensions authority presented a question
of law and that the dispute was ripe for adjudication because RiverValley should
not have to await “the cataclysmic impact” of a final determination of the public
pensions authority. There is no doubt that the ultimate damages could indeed be
“staggering” as suggested -- by the trial court. However, no actual figure has been
established -- or even suggested -- except by conjecture or speculation.
The public pensions authority determined that RiverValley had
improperly excluded 306 individuals from participation in KERS. However, the
-19- existence and amount of RiverValley’s liability for the resulting contributions have
not been finally determined. No action to collect any delinquent contributions has
as yet been undertaken. Moreover, further development of the record is necessary
to resolve RiverValley’s claims. As the public pensions authority notes,
application of equitable estoppel principles asserted by RiverValley requires a
balancing of the public interest against the magnitude of RiverValley’s “injury.”
However, as an amount for the delinquent omitted employer contributions has not
been determined, this evaluation cannot be undertaken and remains entirely
speculative at this point.
Finally, RiverValley cannot show that it is in peril of imminent injury.
RiverValley’s decision to exclude the individuals from participation in KERS was
taken years before the litigation began, and it has already enrolled them going
forward. RiverValley’s decision-making will not be hampered by postponing an
adjudication of the issues. Consequently, we conclude that the circuit court’s entry
of the summary judgment was premature and that the matter is not properly
justiciable at present for lack of necessary ripeness.
To summarize, we dissolve the injunction. We vacate the order of the
circuit court granting summary judgment and remand for proceedings in order to
complete the administrative process below. This ruling is without prejudice to the
rights of either of the parties to pursue legal redress thereafter.
-20- ALL CONCUR.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEE:
Peter M. Cummins Stephen R. Price, Sr. Louisville, Kentucky Louisville, Kentucky
Jason P. Renzelmann Carole D. Christian Louisville, Kentucky Louisville, Kentucky
J. Austin Hatfield Louisville, Kentucky
-21-