Pension funding a top priority for budget session, says House Budget Committee chairman

07/08/2015 10:00 PM

Calling the state pension plans the “elephant in the room” House Budget Committee chairman Rep. Rick Rand, D-Bedford, said that the Kentucky Teachers’ Retirement System pension fund in particular will be a top priority during the upcoming budget session.

The Kentucky Teachers’ Retirement System, KTRS, and the Kentucky Retirement Systems, KRS, are under shaky financial footing.

Without a funding plan in place KTRS’s unfunded pension liabilities have ballooned from $14 billion to $21.6 billion, because of new government accounting standards which took effect July 1.

Rand called the mounting unfunded liability “a major issue” fiscally for the state to solve.

House Democrats led by Speaker Greg Stumbo, D-Prestonsburg, proposed legislation that would have approved $3.3 billion in bond funds for KTRS, allowing the agency to phase in full actuarially required contributions over an eight-year period.

That plan was not adopted by the state Senate, and now a 23-member panel is set to examine the pension fund and recommend potential financing strategies by Dec. 1.

Still, Rand said a bonding strategy could be in the cards for the plan.

“There are other ways to solve that, but there’s really no easy ways to solve that. We could do a blended – where we borrow some and make additional contributions,” Rand said, adding that it would be “very difficult” if the legislature has to make full ARC payments.

Meanwhile, government retirees groups have upped their efforts to bring attention to the sorry state of assets-on-hand to cover liabilities within KRS.

The KERS non-hazardous plan is the most poorly-funded pension plan in the country with 22 percent of assets needed to cover liabilities.

“It’s really difficult, but they are in a predicament over there. They’re basically eating their seed corn is what they are doing,” Rand said.

Rand said the funding woes with the KRS plan are on the “front burner” for lawmakers.

“I think there probably does need to be more money put in there – although we have committed to put more money in there over time and I think we will meet that commitment during this budget cycle,” he said (7:16).

Lawmakers crafted a plan to pay down pension debt in the 2013 session creating new revenues to fund the full actuarial required contribution rate into the systems, and shift new employees as of 2014 into a hybrid cash balance plan.

Rand also added that lawmakers are “not confident” in all of the data coming from the retirement systems; which makes solving the problems facing the plans more complicated (8:53).

Meanwhile, revenue for fiscal year 2015, which ended a few days before this interview was conducted, showed a likely surplus. Rand said additional revenues would be heading into the state’s rainy day fund where it will be tapped by unforeseen and thus non budgeted necessary government affairs.

“Maybe national disaster – we had to call out the National Guard – or an increase in the prison population which I think we will experience this year, or maybe not as much of a decline as we had hoped” he said. “That will be about $50 – $55 million dollars that we’ll have to do.”

During the 2015 budget session the legislature also moved $10 million from the fund for the anti-heroin bill, and another “$8 to $10 million” which was used to bolster education funding which the surplus will cover.

“There are some takeaways, but at the same time we put some additionally money in there too,” he said.

“We’re going to end this year very strong.”

After all is said and done Rand estimated there would be a surplus “in the $150 million range.”


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