Changes paying off for pension systems, but steep challenges remain
No issue has received more legislative attention over the last two years than the potential failure of our public pension systems. Our state employee pension system remains one of the worst-funded in the United States. Other systems, including the Teachers’ Retirement System (TRS), still have a funding ratio that is well below actuarial recommendations.
From the beginning of the talks regarding all pensions, I have stood firmly that all promises to current employees must remain intact. I voted against HB1, the Quasi-government pension bill during the recent special session because employees with decades of service could, under certain circumstances, face changes to their pension. There was absolutely no way of justifying moving the finish line at the end of the race. I supported many of the components within the measure and understood the importance of the passage. However, I felt it was an injustice to the Tier I and Tier II employees who were fully vested in this system.
In past updates, I have shared a little about the lack of oversight, mismanagement and potential negligence that brought these retirement funds to this point. This has resulted in a very real threat to the long-term retirement security of our teachers, first responders, and other state employees. The good news is, it looks like they are finally turning a corner as a result of financially responsible policies enacted by recent legislatures or put into place by the administration. While we still have a long way to go in righting the ship, this is proof that the steps we are taking are in the right direction.
The current budget is the first to be written by House Republicans in nearly 100 years and made pension funding a large priority. In addition to providing billions to fully fund all systems except for the Legislative Retirement Plan, the 2018 budget bill also took the responsible step of requiring any surplus funds be used toward our pension debt. As a result, after cost overruns in state government were paid, our remaining $130 million in surplus funds provided even more funding to the state employee pension plan and shoring up the medical fund for retired teachers.
This level of funding allowed our state employee pension fund (KRS) to begin to inch upward, from an astonishingly-low 13 percent to a projected 15 percent in the next fiscal year. While this is certainly a good sign, we are not nearly out of the woods. Even at 15 percent funding level is dangerously low, and demands further action to secure the retirement of those who provide important services to our communities. This information was shared last week at the Public Pension Oversight Board’s monthly meeting, where it was also revealed that due to increased funding and past reforms by the legislature, every single state retirement plan has a positive cash flow, with one exception: the Teachers’ Retirement System (TRS).
Teacher retirement is the only system that has not been significantly reformed to improve its solvency. The plan is paying out more money than it brings in, a dangerous position for retired, current and future teachers. Officials with TRS have shared that the plan earned just 5.6 percent in investment returns in the last fiscal year, much less than the 7.5 percent return they planned for. This is troubling, particularly since the stock market has enjoyed record gains recently and an extra billion dollars was allocated to the plan by the General Assembly. Just as a reminder, my only retirement is with the TRS. When I was elected I was asked which system I wanted as my pension, TRS or Legislative. I selected TRS and therefore, I do not have a legislative pension.
Also troubling is news that our pension systems are failing to abide by transparency requirements. According to a report issued by State Auditor Mike Harmon last week, pension systems are not making the necessary information available for public oversight. The transparency requirements were passed in 2017 because the legislature saw a need for more oversight into the pensions by both it and the general public. As a result, KRS and TRS must make public the investment companies they contract with, as well as the fees and commissions paid out from the retirement fund.
Unfortunately, the auditor’s report indicated that the retirement systems are not following the law. In my opinion, our workers who rely on the success of these plans deserve to know how their retirement funds are being invested, and all taxpayers deserve to have full transparency in something they have such a large financial investment in. I will continue to ask questions and seek to hold government agencies accountable to the public.
As always, I can be reached at cellphone 606-524-0227 anytime or through the toll-free message line in Frankfort at 1-800-372-7181. You can also contact me via e-mail at email@example.com. You can also keep track of committee meetings and potential legislation through the Kentucky Legislature Home Page at www.lrc.ky.gov. I also have a presence on Facebook, and Twitter. Thank you for the opportunity to serve you. It is indeed a privilege.