State retirement systems give early glimpse at their budget requests, calling for multimillion increases

08/24/2015 08:15 PM

FRANKFORT – As lawmakers prepare to draft a two-year spending plan in the upcoming 60-day session, Kentucky’s public pensions will be seeking larger contributions from the general fund.

Officials from the Kentucky Retirement Systems and Kentucky Teachers Retirement System presented preliminary budget figures to the Public Pension Oversight Board Monday, with both pensions seeking multimillion-dollar contribution increases from the state.

But under pension reforms passed in 2013, only the Kentucky Retirement Systems, which faces $17.8 billion in unfunded liabilities, can wholly expect additional dollars after the General Assembly pledged to direct full contributions to the cash-strapped agency that covers state and municipal workers. A 23-member workgroup has been empaneled to recommend funding solutions for KTRS, with proposals expected by Dec. 1.

KRS Executive Director Bill Thielen said if the state’s payroll grows 3.5 percent based on assumptions, lawmakers will have to appropriate an estimated $128 million extra to funds for state workers and police while cities and counties will be on the hook for another $34.1 million in fiscal year 2017. Those projections do not include the second year of the upcoming biennial budget.

“The projected rate is the same for both years of the biennium,” Thielen said of fiscal years 2017 and 2018. “Now the payroll may grow more or less and so the number will be different, but we’re going to have the same projected contribution rate.”

The state’s payroll actually declined in the latest fiscal year, which would lower Thielen’s projections if repeated.

State Budget Director Jane Driskell presented different figures for the upcoming fiscal year, telling the oversight panel that an extra $108 million will be needed for contributions to state retirement plans, with $60 million of that coming from the general fund.

“The current year was a $106 million additional (general fund dollars), and in ’17 it would require an additional $60 million attributable to the general fund,” she said.

KTRS, which has $14 billion in unfunded liabilities, faces a less certain funding future in the upcoming session.

The agency supported a push for additional money through the sale of $3.3 billion in bonds, but the Republican-led Senate declined to endorse that proposal in this year’s General Assembly. A workgroup has been formed to examine funding issues at KTRS and recommend potential remedies by Dec. 1

Sen. Joe Bowen, R-Owensboro, said on Monday that lawmakers showed appropriate caution toward the bonding plan based on the recent stock-market slide, but Harbin defended the original proposal as a reasonable way to move the state toward full actuarially required contributions to the pension, likening the plan to “a bridge loan.”

After receiving $389 million in the current biennium, KTRS will seek a whopping $1.4 billion in next year’s two-year budget session, according to figures presented by Harbin. Much of that, just more than $1 billion, would cover past short falls and cover full pension contributions in the next two fiscal years.

As Harbin explained, KTRS has faced cash-flow shortages since 2008, prompting the agency, like KRS, to liquefy assets to cover retiree benefits.

“Currently this past year we’ve sold over $600 million in assets to meet our $1.8 billion retiree payroll, so over 25 cents on every dollar that we spent last year was spent from selling investments,” he said. “Over the next four years we’ll be selling $3.4 billion in assets to meet retiree payroll.

The problem that we have is that we’re not in as a position as we were in 2008. In 2008 we had the ability to hold onto our investments through the market downturn. … Now we’re in a position that we can’t hold onto those investments.”

Financial issues at both pension agencies may be resolved at the expense of others supported by the general fund.

Rep. Arnold Simpson, who does not serve on the panel but attended Monday’s meeting, said finding additional resources for the state’s higher education system and lowering the financial burden on students will be more difficult with more money dedicated to the state’s underfunded pension plans.

“With the realization that our pension challenge is far greater than what we anticipated, the likelihood of devoting funds to higher education is going to be probably reduced,” said Simpson, D-Covington. “I’m not saying it’s impossible because that’s going to be an ultimate issue of the body and leadership, but I think it’s going to be a daunting task.”


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