Even with changes to the state’s largest pension system, the crushing effects of Kentucky’s severely underfunded pension systems remains a major concern for Kentucky businesses and taxpayers.
The Kentucky Chamber of Commerce sent an open letter to members of the General Assembly Wednesday applauding the work that has been done to reform the state’s largest retirement systems but also making it clear there is much more to be done to ensure the solvency of the pension systems.
The Chamber has long been a vocal advocate for reform as well as a proponent of taking a closer look at the systems in order to see how they are being run and where there is room for improvement.
Over the summer, the Chamber called on state Auditor Adam Edelen to do a performance audit of the Kentucky Retirement System, a critical step in providing needed oversight to scrutinize assumptions that involve hundreds of millions of dollars and affect the entire $10 billion General Fund budget. Legislative leaders are discussing the possibility of providing the funding needed to bring in outside experts to look at the system.
During the 2015 session, bills seeking to address issues of transparency, oversight and other concerns have been filed. In the letter, the Kentucky Chamber asks lawmakers to support the following bills:
- HJR 7 that asks the Public Pension Oversight Board to hire an independent actuary.
- HB 47 to add the Legislators’ Retirement Plan, the Judicial Retirement Plan and the Kentucky Teachers’ Retirement System to the Public Pension Oversight Board’s review responsibilities.
- HB 62 to ensure that any entity wanting to withdraw from the Kentucky Retirement System repays its unfunded liability.
- HB 116, HB 444 and SB 157 to address the issue of pension spiking.
- HB 306 to require an actuarial analysis of retirement legislation that includes the impact on funding levels and unfunded liabilities over time, require funding mechanisms be disclosed and require an actuarial study of the system be performed every five years.
- SB 20 to strengthen transparency by requiring the disclosure, if requested, of the retirement benefits for past and current members of the General Assembly.
- SB 22 to strengthen transparency by requiring the Judicial Retirement Plan, the Legislators’ Retirement Plan, the Kentucky Retirement Systems and the Kentucky Teachers’ Retirement System to establish in administrative regulation a placement agent disclosure policy.
- SB 23 to allow legislators contributing to the Legislators’ Retirement Plan before January 1, 2014, to make a one-time election to have their benefits from the system based solely on their legislative salary and any salary earned in another state-administered retirement system prior to January 1, 2014.
Other pension bills will continue to be monitored by the Chamber’s team. However, one piece of legislation mentioned in that letter which raises concerns among the business community is House Bill 4, a proposal to bond $3.3 billion of the debt of the Kentucky Teachers Retirement System (KTRS).
In recent years, KTRS has come to legislators expressing the need for more funding in order to shore up their retirement system. However, the Chamber has concerns about moving forward with such a decision without public debate on the idea as well as a deeper look into the system’s practices.
In March 2014, the Kentucky Chamber called for a legislative study group to analyze KTRS through the use of outside experts in order to find solutions and strategies to the system’s funding woes. However, that was not accomplished and a comprehensive look at the system is still not available.
“Frankly, many in the business community are skeptical of additional bonding, especially since taxpayers have not had the benefit of vetting such a major initiative,” Chamber President and CEO Dave Adkisson writes in the letter. “This discussion focuses solely on the funding side and does not include a comprehensive review of the costs and sustainability of the benefits structure over time. For now, it would be imprudent for the business community to support such a proposal without a significant amount of open, public deliberation.”
Other recommendations put forth in the letter include the creation of a consensus actuarial group (in a manner similar to the state’s Consensus Forecasting Group) to provide a broader base for the pension system assumptions and the suggestion that all future governors should be required by statute to clearly identify in his or her budget proposed to the General Assembly how the actuarial required contributions for each pension system are funded.
Adkisson concludes his letter to lawmakers by noting the many important issues left to be addressed during the 2015 session and stating that addressing the persistent problems in the state’s pension systems should be at the top of the list.
“The pension situation has, by far, the most immediate and consequential implications for the financial well-being of our state,” Adkisson said.
As of Wednesday, there are 17 days remaining in the 2015 session. See a full copy of the letter here.