VIDEO: Pension officials discuss crisis but offer few ideas other than funding at Business Summit
STORY UPDATED WITH VIDEO:
Pension group leaders talk funding and possible solutions at Ky. Chamber Business Summit
The Kentucky Chamber of Commerce 10th Business Summit kicked off Monday with a panel about the persistent problems in the state’s pension systems, the biggest threat to the financial stability of the state.
Kentucky Teachers’ Retirement System Executive Director Gary Harbin began his remarks by noting that teachers in the state are not eligible for social security benefits, making their pension their main or only source of income during retirement.
Harbin said the reason the system is at the point it is today is the lack of good returns during the economic downturn.
Pointing to a study of state pension plans, Harbin said in 2001 many plans were at 100 percent funded and they also saw a drop but they raised contribution rates while Kentucky’s contributions have remained the same. Harbin also said KTRS has been asking for increased contributions since 2008 since they began experiencing negative cash flow and added that the system has sold off millions of dollars worth of assets to make pay roll.
Executive director of the Kentucky Retirement System, Bill Thielen, presented to the Summit about the underfunded status of the state’s biggest pension plan which covers most state employees.
Thielen said as of June 30, 2015, the system has around $17 billion in the bank but the system pays out around $1.8 billion each year to its members. KRS is currently 24 percent funded with a decline to around 16 percent expected in the coming years.
Each system leader noted reforms that have been passed on recent years to work to improve the problems within the plans including cost of living adjustments (COLAs) and a different plan structure for new hires into KRS.
As for how long it could take to fix the systems, Thielen said it would likely take a minimum of 12-15 years noting the changes that have been made are long term fixes but said the options in front of the state is “breaking the promises made to retirees” or finding the money to shore up the system. Thielen added that the plan will not run out of money as long as the state pays the Actuarially Required Contributions (ARC) and the returns of their investments are met.
Jim Carroll, an advocate for Kentucky Government Retirees, began his remarks by stating that the pension issues that face the state is a “very real crisis” and thanked the Chamber for organizing the conversation on the pension systems.
Carroll said the plans are unsustainable, adding the concerns of retirees that if there is another economic downturn then the plan could be in serious trouble and unable to pay out benefits.
During the next session, Carroll said the retirees will ask for the legislature to pay an additional $250 million above the ARC to help shore up the system. Carroll said his group knows the additional payment is a tall order and that there is little to no extra money in the budget but he noted that as the stakeholders in the system, the retirees feel they should be able to come to the table on this issues.
After the remarks of each panelist, moderator Bill Lear, member of Stoll Keenon Ogden, former legislator and Kentucky Chamber chair-elect, asked each of men where the new money to shore up the systems will come from to which Carroll said tax reform must be done in the state.
Thielen said if the state bonded for $5 billion dollars and put all of that money into the system in one year, the system would then be only 52 percent funded. He continued to echo his earlier remarks about the long term realities of the system.
Harbin, on the other hand, noted the efforts by his system during the 2015 session to issue a $3.3 billon dollar bond to provide an influx of cash, which he said would have the “least impact on the taxpayers.” Speaking on the next session, Harbin seemed to feel the system will continue to ask for the bond but also added that without any changes, KTRS will be asking the legislature for $1 billion dollars out of the next two year budget.