Despite being one of the most underfunded public pension plans for teachers in the country, the Kentucky Teachers’ Retirement System boasted in a press release today of “superior investment performance,” as the fund earned a return of 8.6 percent over a one-year period ending March 31.
KTRS claimed this rate of return placed it in the top 10 percent of public pension plans in the country with assets over $1 billion, faring similarly in the last three years and five years.
“The teachers’ fund performance was strong in terms of total return and performing better than its market benchmark,” said Gary Harbin, KTRS executive secretary. “I am particularly proud of KTRS’s investment program because this performance also accounts for the challenging task of liquidating more than $570 million of investment assets during the year to meet current benefit payments.”
The challenge Harbin referred to stems from the large and growing unfunded liability of KTRS. Due to a recent change in federal accounting standards, the unfunded liability of KTRS ballooned from $13.9 billion to $21.6 billion this year, and its funding ratio decreased from 52 percent to 45.6 percent — near the bottom nationally for teachers’ pension plans.
KTRS officials have repeatedly stressed their liability problems are not due to poor investment strategy, rather a decade of underfunding by Frankfort. While the plan was over 80 percent funded a decade ago, multiple years of Frankfort kicking in less than what was actuarially required has depleted the plan, as well as that of the Kentucky Employee Retirement System for non-hazardous state workers, the worst-funded public pension plan in the country.
Others — such as Randy Wieck, a Louisville teacher who is suing KTRS — add the charge that KTRS has relied too much on high-risk alternative investments like hedge funds and private equity, and that they lack transparency on fees paid to investment managers.
KTRS lobbied heavily for a $3.3 billion bond to shore up their funds in this year’s Kentucky General Assembly, and though such a bill passed the House, the Senate only passed it by stripping out all of the funding and requesting that the plan be studied further.
The question of whether KTRS needs more funding or more studying has spilled over into this year’s race for state auditor, with Republican candidate Mike Harmon recently criticizing current auditor Adam Edelen for not doing a thorough audit of KTRS investments. Edelen responded by saying his office did the first-ever nine-month review of KTRS last year, which “revealed that the most significant contributor to the system’s woes is a consistent lack of funding by the legislature, where Mike Harmon has served for more than a decade.”
Harmon responded by saying that placement agents — shadowy investment middlemen hired by plans — used by KTRS need to be exposed, but Edelen’s campaign manager said KTRS has never used them.
Edelen tells Insider Louisville that the KTRS announcement of strong investment returns proves that his interpretation of the issue is correct.
“This confirms what my office’s audit of KTRS last winter found — that for a system the size of KTRS, it is well-managed and committed to investing resources effectively for its members and taxpayers,” said Edelen in an emailed statement.
Harmon’s campaign did not immediately respond to a request for comment on the new KTRS claims. Harmon was among those who voted against the $3.3 billion bond for the plan this year, saying it should be studied further.
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Campaign manager Jesse Benton sent IL the following statement from Harmon, responding to the investment return announcement by KTRS:
“It is fortunate that KTRS had a good rate of return last year. However, solid returns of 8 and 9 percent cannot fix this system, now. The simple fact is that KTRS still remains significantly underfunded, and we will not fulfill our promises to our teachers if we do not soon undertake major reforms. Even the actuary that KTRS hired indicated that the $7.88 billion increase in the unfunded liability from 2007 to 2013 had more to with ‘ Investment Returns Less Than Assumption’ at 52.3 percent than ‘State Appropriations Not Paid’ at 9.3 percent. So, I will continue to call for us to ‘Fix It’ then ‘Fund It’ so we can assure our hard working teachers the pension they have been promised is there. It is disheartening to me that Adam Edelen doesn’t want to be part of the solution.”
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Edelen’s campaign manager Will Carle sent IL the following statement responding to Harmon’s charges, saying that the Republican challenger has his facts wrong on the funding dilemma of KTRS, while taking a swing at Benton, too.
“Another day, another set of misleading attacks by the Harmon campaign. First it was his call for an investigation into placement agents by the teachers retirement system, despite the fact that such agents have never been used. Today he complains about the performance of the system while refusing to acknowledge the impact of the global recession on the fund, as anyone with a 401k is well aware.
It’s astounding that Mr. Harmon, who has been in the legislature for over a decade, is now pretending that he isn’t part of the problem. Lack of full funding by the legislature is the primary culprit for this mess, which threatens to leave our hard-working teachers without a safety net. Just last session, when Adam and others were discussing ways to solve the crisis, Mr. Harmon was busy securing the services of a political operative under federal investigation for bribery.
Given Mr. Harmon’s shady associations and record as the “do-nothing from Danville”, it is little wonder that Kentucky’s teachers so strongly endorse Adam’s candidacy rather than his own.”