Bevin shares his pension plan with retirees, but some skepticism remains

06/26/2015 10:44 PM

LEXINGTON — Kentucky’s public pensions will be a problem for the next several gubernatorial administrations, Republican candidate for governor Matt Bevin told a group of retirees Friday.

His hour-long talk with more than 80 at the Kentucky Public Retirees annual meeting included ideas to hire new employees into a 401(k)-style pension and offer current workers their own defined-contribution plans. Democratic lieutenant governor candidate Sannie Overly spoke to the group Thursday morning.

Despite saying such a move would “stop the bleeding” in the underfunded Kentucky Retirement Systems and not affect pensioners, Bevin could have done more to convince the retirees who heard his speech, said KPR Vice President Shirley Clark.

“I heard a lot of talk about that,” she said. “They don’t understand how that’s going to help the unfunded liability of the retirement system.”

The GOP nominee said he’s better equipped to handle the state’s pension problems given his investment background in the industry. Integrity Asset Management, a firm he helped found in 2003, invests more than $5 billion in public and private pension assets.

If he’s successful, he’ll have considerably more under his thumb — nearly $41.8 billion in public employees’ and teachers’ assets, plus $39.4 billion in unfunded pension and insurance liabilities by Wednesday when the Kentucky Teachers’ Retirement System begins reporting $21.6 billion in unfunded liabilities due to new government accounting standards.

The state’s unfunded pension liabilities could grow even more if the Kentucky Retirement Systems’ Board of Trustees moves ahead with assumption updates proposed in December by actuaries with Cavanaugh Macdonald Consulting based on a five-year experience study.

The new assumptions would raise KRS’s unfunded liabilities from $17.8 billion to $19.5 billion.

The pension plan for most state workers has an estimated funded ratio of 19 percent, and Portland, Ore.-based consultants R.V. Kuhns predicted in a study last month that the fund will hit bottom at 15 percent by 2020. Even with full actuarially required pension contributions, R.V. Kuhns expects the state employees’ funded ratio will not climb above 15 percent until 2026, when it will reach 16 percent.

Bevin called fulfilling public pensions “a legal and moral obligation” and criticized “career politicians” who should have kept a better eye on the pension systems’ purse strings.

The state retirement systems should move to a risk-free rate of return rather than the assumed investment return rates of 7.5 percent by KRS and KTRS, he said.

He wouldn’t, however, commit to fully paying the state’s actuarially required contributions to the pension plans. Using a risk-free discount rate would increase a plan’s liabilities and, as a result, the cost to cover current and future benefits, according to an analysis by The Nelson A. Rockefeller Institute of Government.

“I do not make a promise that I am not sure that I can deliver to you,” he said. “What I am committing to you and what I’m telling you that I will do everything within my power to do, is to ensure that we fulfill the obligation that we legally and morally should fulfill to you based on the promise that we made when you took your job and when you retired from your job.”

While Bevin was critical of assumptions employed by KRS, he said the pension may require payments greater than those recommended by actuaries.

Even with his background in investments, Clark said Bevin should meet with retiring KRS Executive Director William Thielen and others involved in the governance of the pension agency. Bevin, in response to a question from a pensioner, said he had not reached out to Thielen or Thomas Elliott, chairman of the KRS Board of Trustees.

“I think he’s got to do a lot more to find out about how it actually works, but I do think he has a very good knowledge of how it works,” said Clark, who also serves as KPR’s legislative liaison.

“It’s just the fact that he needs to talk to the people, the powers that be that know about the funding and that type of thing.”

She referenced a civil back-and-forth between Bevin and Bobby Henson, a former KRS trustee, on the pension’s funding, assumptions and investment returns, but she said she believes Bevin “has very good intentions of trying to do something about it.”

Whether Bevin will meet with Kentucky retirement officials before the Nov. 3 election remains unclear.

“There’s a number of people in different cabinets that I have had opportunities to speak with, but the point is you can’t talk to everybody and we’re not going to be able to talk to everybody,” he told reporters after his remarks. “But this is an issue that I understand fairly well having worked in it for quite some time.”

When asked whether he could learn more about specific issues facing KRS, Bevin said yes.

“Everybody could always learn more about every issue, myself included,” he said.

Both Bevin and Overly presented plans appealing to retirees, Clark said, but some misgivings persist, particularly the security of their retirement checks.

“Regardless of what any of them say, the concerns about the funding of the system,” Clark said.

“I don’t think retirees believe it’s as good as they try to imply. They all imply that it’s in such a shape we’re not going to lose our retirement, but retirees are still worried about that and I think what both of them, either one of them said is not going to change a lot of retirees’ minds.”


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