Kentucky haunted by ghosts of pension funding past, but director says it can still be turned around

12/18/2012 08:20 AM

If the General Assembly and Gov. Steve Beshear make the state’s full payments into the Kentucky Retirement System, the financially shaky funds are “not going to be in any trouble of being insolvent,” the system’s executive director said.

Bill Thielen, executive director of the Kentucky Retirement System, said the recommendation by the legislative task force on pensions to divert an extra $300 million between 2014 and 2015 to make the full payment is a huge first step. The payment would jump from more than $500 million to $800 million.

The Kentucky Retirement System is the umbrella organization for the Kentucky Employee Retirement System that covers state workers, the County Employee Retirement System and the State Police Retirement System. Combined, that system covers more than 320,000 current workers and retirees. But the system is woefully underfunded after years of getting less from the state — as the employer — than the fund needed and underperforming with investment income. The fund has $18 billion less than what it needs to cover pension benefits and health care that it owes to current and future retirees.

As a result, the Kentucky Employee Retirement System is 27 percent funded (a healthy system is around 80 percent funded). And the system is currently selling off $75 million of assets each month to pay benefits for retirees.

In an extensive interview on Pure Politics last week, Thielen said the system’s actuaries have said the fund can begin to climb back to solid ground “if the General Assembly did (fully fund it) as they have said they intend to do and if we meet all of our assumptions,” including a 7.75 percent rate of return on investments. (0:45 of Part 2)

Thielen also addressed:

  • What the “inviolable contract” represents between the state and current state workers and retirees and whether he believes those benefit levels can legally be changed (3:00)

  • Whether the system needs to change benefits for existing employees in order for the fund to bounce back (5:45)
  • Whether he believes the state should sell a bond in order to generate extra money to pay down the unfunded liability (6:45)
  • Health insurance changes to retirees, which have helped reduced the estimated unfunded liability in the system. (7:15)
  • Transparency in the system, including whether he favors releasing the amount state retirees receive in pension income, which currently is exempted from public records requests by state law. (9:45)

Thielen also discussed how the system got into the funding hole it is currently in.

In this section of the interview, he answered questions about how he viewed the system when he first joined it in 2006 as the chief operating officer.

He said the funding level was “probably overstated” at the time — plus governors and the General Assemblies for the past decade passed state budgets that shorted the amount the retirement system actuaries said the fund needed to stay healthy.

“Actually, in 13 of the last 18 years, they’ve failed to fully fund the actuarily recommended contribution rate,” Thielen said (2:00). “It’s a part of the problem.”

Watch the video at 2:30 to find out what other factors Thielen list.

Thielen also answered questions about the system’s investments (4:45) and use of “placement agents” — middle men hired by investment firms, who received $11.6 million in payments from the system, according to a 2011 state audit.


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