Kentucky Retirement Systems revealed this week that funding for its largest pension plan — the Kentucky Employees Retirement System for non-hazardous workers — has fallen to 21 percent this year, from its already worst-in-the-nation 23 percent last year. At the same time, representatives from the Kentucky Teachers’ Retirement System told legislators in Frankfort that if they don’t approve at least $1.9 billion in new bonds, that system soon will become the worst-funded teacher pension plan in the country, as well.
Though Frankfort legislators and Gov. Steve Beshear praised themselves in 2013 for passing a pension reform bill that supposedly fixed much of the public pension crisis in Kentucky, yesterday’s news shows much work is left to be done amidst an already tight budget crunch and bad credit rating for the state. The 2013 legislation called for more KRS funding in the short term, but did not address the worsening situation with KTRS.
At Wednesday’s Interim Joint Committee on State Government, Beau Barnes — the KTRS general counsel and director of operations — proposed 30-year bonds of either $1.9 billion or $3.3 billion to shore up their funds. KTRS had an unfunded liability of $14 billion dollars last year, which amounted to only 51 percent funding — but with new federal accounting standards this underfunding now is assumed to have jumped to $22 billion. Barnes says that without this action on bonding, they soon will be only 42.4 percent funded, putting them below Illinois as the worst-funded teachers’ pension plan in the country.
“If we don’t get additional funding in soon, there’s something that’s going to happen,” said Barnes to the committee. “It’s not a risk, but it’s an absolute certainty. If we don’t start getting some additional funding for the pension fund, the funding level is going to start declining. It’s going to get much harder to fix.”
Though Democratic House Speaker Greg Stumbo opposed the bond proposal of KTRS in this year’s session of the General Assembly, he said in the committee that because interest rates are at near-historic lows, he is “convinced that this is a fundamentally sound proposal, and if we don’t act soon we may lose this window of opportunity.”
But such a large bond request is sure to face tough odds in next year’s session of the General Assembly, as the state already has a poor credit rating and the Republican-dominated state Senate is likely to not receive such a proposal warmly. Likewise, tax reform proposals such as those of Rep. Jim Wayne, D-Louisville, that would significantly increase state revenues are not expected to gain ground in Frankfort’s current environment.
Randy Wieck, a duPont Manual High School teacher currently suing KTRS for insufficiently advocating for teacher pensions, told student journalists at his school that this bonding plan is far inferior to what should be done: freeing up funds in the state budget.
“In my opinion, this is simply covering debt with debt,” said Wieck to Manual Redeye. “As the situation has deteriorated, and as Kentucky has a very low credit rating of AA-, proposing more debt is simply kicking the can down the road. As we have waited for some solution to come forward — something to solve this problem — we have been disappointed.”
Chris Tobe — a former KRS trustee turned whistleblower and pension watchdog — concedes to Insider Louisville that such bonds may kick the can down the road for a few years, but it “just shifts one form of debt for another. (It’s) like rearranging the deck chairs on the Titanic.”