Kentucky’s ailing pension funds might finally start getting healthier, according to estimates provided to lawmakers on Monday.
The pot of money used to send out retirement checks to most of Kentucky’s public workers — KERS non-hazardous — is currently among the worst-funded in the nation at 12.9 percent.
But Rich Robben, Executive Director of the Office of Investments for Kentucky Retirement Systems, says that after massive infusions of cash into the pension system by the legislature in recent years, that funding level might go up by 2 percentage points next year.
“The assets are growing, outpacing the liabilities. I would commend the legislature for the amount of money that has been appropriated to the plans,” Robben said. “There’s no quick fix to this. But what has been done is working.”
Robben said initial projections showed KERS non-hazardous growing to 15 percent funded in 2020 and 17 percent funded in 2021.
The predictions will be finalized in December.
Kentucky’s pension funds became the most unfunded in the nation due to a combination of factors — diverting contributions away from the systems in the early 2000s, the 2008 recession dinging pension investments and demographic changes like a longer-living workforce.
In recent years, the state legislature has approved — and Gov. Matt Bevin has signed — budgets that put much more money into the pension systems.
Spending on pensions currently takes up about 14 percent of the state’s discretionary spending.
But the funding level of the pension systems continued to decline as liabilities outpaced cash and investment returns.
State officials are hopeful that the decline has bottomed out.
Sen. Chris McDaniel, the Republican chair of the Senate’s budget committee, said the state has more work to do.
“It will not remain this way without a long-term discipline on both the benefit side and the contribution side,” McDaniel said. “I will only say that this is a positive data point. Because we still have a long way to go. But we should be thankful that we’re here.”
The legislature has enacted several changes to pension benefits in recent years — most recently in 2013 moving new state workers into hybrid 401k-type retirement plans.
Republican leaders of the legislature and Bevin have advocated for further benefit changes, including to teachers’ retirement plans.
But the proposals have either been scuttled before they passed into law or struck down by courts.
Over the summer, the legislature passed a bill that will allow the move of thousands of employees of “quasi” agencies like regional universities and health departments out of the state’s pension system and into 401k-type plans.
That law won’t help the funding status though — it is predicted to add about $800 million to the state’s pension liability.