KTRS's funded status climbs in one financial valuation, drops in another as "crisis" continues
12/09/2015 10:45 PM
FRANKFORT — Despite his agency showing a better funded status in one of the two separate financial reports required by new governmental accounting standards, Kentucky Teachers’ Retirement System Executive Secretary Gary Harbin said Wednesday that the pension system faces dire straits.
Actuaries with Cavanaugh Macdonald presented fiscal year 2015 valuations for KTRS’s pension and health plans, telling the KTRS Board of Trustees that the plan’s funded status increased from 53.6 percent to 55.3 percent last fiscal year while its unfunded liabilities drooped slightly from $14 billion to $13.9 billion.
But in another financial statement that bond-rating agencies like Moody’s and Standard and Poor’s will consider in evaluating the state’s credit rating, the plan’s unfunded liabilities jumped from $21.6 billion to $24.4 billion and a 44.8 percent funded ratio, down from 45.6.
The second set of figures is required under a new rule adopted by the Governmental Accounting Standards Board in recent years for pensions without steady funding streams. KTRS is one of eight public pensions to use this GASB standard, which requires KTRS lower income assumptions from 7.5 percent to 4.88 percent, according to Harbin.
Harbin attributed the peril facing KTRS, in part, by the sale of investments in order to make benefit payments, saying the plan had to sell $650 million in assets last year and is on pace to hit $750 in asset sales this year.
“If you’re having to sell that much of your assets to meet retiree payroll, this is a crisis,” Harbin told reporters. “It’s a crisis now. It’s a crisis for teachers in the classroom today.”
Funding issues at KTRS have been a key focus for lawmakers ahead of next year’s General Assembly, and KTRS’s pension valuation comes as the worse-funded Kentucky Retirement Systems reported during its Dec. 3 board meeting that the fund for most state workers dipped from 19 percent funded to 17.7 percent.
A 25-member work group empaneled by Gov. Steve Beshear came up with a series of options to improve finances at KTRS during its final meeting Dec. 1, but not a resolute proposal.
Harbin said the GASB rules will not apply to KTRS once the state begins making increased pension contributions.
The board approved budget requests for an additional $520.4 million in fiscal year 2017 and $512.9 million in fiscal year 2018, and Harbin said those amounts will likely be offset by about $28 million in previous bond amounts that will be paid off in the upcoming biennium as mandated by lawmakers.
Harbin and KTRS officials pushed for the sale of $3.3 billion in bonds in this year’s session as a means to shore up the pension agency and give the state an eight-year window to gradually increase its pension contributions. Actuaries reported that the state paid 61 percent of KTRS’s requested contributions in the past fiscal year.
Bonding was one option raised by the work group, and it’s proven politically divisive. The Democratic House of Representatives passed this year a bill proposed by House Speaker Greg Stumbo that would have authorized the sale of $3.3 billion in bonds, but the bill couldn’t pass the Republican Senate.
The chambers could not hammer out an agreement before the General Assembly adjourned sine die.
Harbin is “optimistic” the legislature will pay increased pension contributions, but he said it may not be the amount the agency seeks.
“I’m hopeful that we will, but I do, my ultimate hope is that we have a funding plan that’s in place during this legislative session that will reach this full (actuarially required contribution) in order to amortize this debt over the 28 years that we have left on our funding policy,” he said.
Asked specifically about bonding, Harbin said that plan “makes sense from a finance standpoint.”
Stumbo, D-Prestonburg, has signaled that he will again propose the $3.3 billion in bonds while Gov. Matt Bevin and top Senate Republicans have voiced their opposition to that plan. Sen. Chris McDaniel, a Taylor Mill Republican and chairman of the Senate Appropriations and Revenue Committee, suggested on Tuesday that funding issues at KTRS could be resolved through gradual monetary increases coupled with systemic changes for future teachers.
“The rates right now that we can borrow the money are so low, and it gives the state the state the opportunity to catch up and get ahead,” Harbin said.
“I think that the governor hasn’t looked at this in depth, I don’t think, and I think that if we were to sit down and look at this on a finance, just strictly a finance basis, I think that they would see that it would ultimately save the taxpayers money,” he continued.
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