Pension systems' practices and investments need closer monitoring to prevent crisis, Stumbo says
06/10/2014 11:07 AM
With lawsuits and some employers potentially bolting from the Kentucky Retirement System, House Speaker Greg Stumbo says state leaders to more closely monitor these funds.
A U.S. bankruptcy court judge recently ruled that Seven Counties Services, a regional mental health center in Louisville, could proceed with bankruptcy protection, which could mean leaving the Kentucky Employee Retirement System. Stumbo said action needs to be taken because agencies leaving the system but asking the state to pay for their current retirees could “destroy” the pension system.
“You can’t expect people to just leave the system after they wanted in and take their assets with them, the younger people, and leave their liabilities and ask people like me to ask my constituents and people all over the state to pay more taxes to fund that,” Stumbo said. “I’m not gonna do it and I doubt my colleagues are gonna do it. So if you wanna destroy the public pension system, that’s a good way to do it.”
As for the decision about Seven Counties, Stumbo said the General Assembly can’t do about it. But he said he believes the governor and attorney general should appeal the decision.
However, Stumbo said he is not sure whether or not they will because no one has spoken to him about the case. He expressed concern that the leaders of the state aren’t aware of the ramifications of the decision.
But Stumbo disagreed with the premise of questions aimed at the General Assembly and recent governors not adequately funding the retirement system. He said the lawmakers might not have signed off on what the Kentucky Retirement System requested but that the pension fund was not accounting for money properly.
“It’s not funded to the pension system’s request because what the pension system did was do an accounting system and their request was based upon price versus market,” Stumbo said (at ). “So if they paid $10 a share for stock and it was now worth $50, they based their model on $10 rather than $50…no one uses price versus market.”
Stumbo also criticized the investment practices of the pension systems. He added that he believes using pensioners money and investing in funds that don’t have history is a violation of their duty to the system.
Stumbo said he doesn’t have any confidence in the current board of the system.
“I have no confidence in the leadership, the directors, I have no confidence we have enough eyes on that,” Stumbo said (in the video below). I think we should have the attorney general, the auditor, the treasurer, appointees from the General Assembly, we should have everybody on some capacity overseeing their actions because their actions obviously haven’t been historically good.”
Another current pension case involves the city of Fort Wright suing the Kentucky Retirement System for violating the law and making risky investments, as the Lexington Herald-Leader reported.
Stumbo said he believes Fort Wright has an interesting case and he believes the lawsuit could be worth the money it costs the city in order to bring to light the dealings of the retirement funds because Stumbo said the heads of these funds don’t offer enough details about their investments.
“That stuff needs to be aired out in public,” Stumbo said. “There’s too much money at stake and too many people’s livelihoods who are going to to be relying upon that money.”
Stumbo said the pension crisis taught lawmakers a lot about the systems and the problems that exist within the system and it has become clear to the legislature that more monitoring is needed.
“We were all here, pension systems would come over and say ‘everything is hunky-dory’, give everybody a cost of living, we do that,” Stumbo said. “We, the General Assembly, were guilty of that, it came back to haunt us.”
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