Tue August 12, 2014
Kentucky's Teacher Retirement System May Become One of The Worst-Funded In The U.S.
New pension accounting standards could place Kentucky's teachers' retirement system among the worst-funded in the U.S.
The new standard from the Governmental Accounting Standards Board, set to go into effect this year, will take a more holistic approach to government pension accounting. As a result, the state will be required to provide a more accurate accounting of its various pensions' liabilities.
As a result, the new standards will place the funding ratio of the KTRS pension to about 40-percent funded, said Chris Tobe, a prospective Democratic candidate for state treasurer and former Kentucky Retirement Systems board member.
The current unfunded liability of the Kentucky Teachers Retirement System stands at 51.9 percent, which works out to about $14 billion in unfunded retirement moneys. Under the new standards, that liability will increase to about $22 billion, said KTRS legal counsel Beau Barnes.
The new standards will also require KTRS to significantly lower investment returns that reflect the updated state of its books. Barnes said that could mean KTRS' return on investments dropping from 7.5 percent to about 5 percent. That could escalate the fund's overall liabilities because the majority of its funding—over 70 percent—is based on investment return.
"What GASB does is, it says you're not being funded on an actuarially sound basis," Barnes said. "Then at some point you're going to run out of money, and you can't earn 7.5 percent on dollars you don't have."
The General Assembly can do little about the situation until the 2015 session begin, Barnes said. Even then it will be a challenge because it's not a session in which the assembly will address budgetary issues.
During the 2014 legislative session, lawmakers put about $750 million into the fund—half of KTRS' original request of $1.4 billion. The legislature also declined to take out a pension obligation bond to begin shoring up the pension, which Barnes said could be used like refinancing the mortgage on a house. Critics contend that that approach amounts to using more debt to pay off debt.
One such critic is Randolph Wieck, a Manual High School teacher leading a legal challenge against the General Assembly and Gov. Steve Beshear. Wieck alleges that the legislature and governor broke state law by underfunding KTRS for years.
"This is the low point of my career," Wieck said. "I've taught for 24 years, and I never thought at this point that I would have to be fiddling with a corrupt legislature and a union that doesn't have the starch to stand with its own members."
Brent McKim, president of the Jefferson County Teachers Association, has said that he doesn't support the challenge led by Wieck, which includes about 100 teachers.
Wieck said he's received a positive response from several lawmakers telling him that his group has a firm legal standing, but he declined to name which ones.
Barnes said he believes the legislature and the governor could be held liable for the underfunding situation, depending upon how much they have actually prevented from going into the fund.
The KTRS will release a full, detailed report on the new unfunded liability in December.
About 140,000 teachers are enrolled in the KTRS.