In a meeting of the Public Pension Oversight Board Monday, Kentucky Chamber President and CEO Dave Adkisson laid out the concerns of the business community regarding the need for stability within the pension systems. Adkisson said the oversight group needs to push for funding of a comprehensive audit, increased transparency, and a compromise to shore up the retirement system for state teachers.
In his remarks, Adkisson commended the work of the legislature to pass bipartisan reforms to the Kentucky Retirement System (KRS) in 2013 that are expected to produce billions in long-term savings. However, Adkisson also pointed out that the system remains woefully underfunded and the business community remains concerned about the threat to taxpayers.
Because of these concerns, Adkisson pointed out the call by the Kentucky Chamber for a comprehensive performance audit of the system ten months ago. There has still been no movement on this request but the idea has since been endorsed by many legislators, gubernatorial candidates and state Auditor Adam Edelen.
The Kentucky Retirement System Board of Trustees also added their voice to the call on Friday when they passed a resolution requesting a comprehensive performance audit, noting the Chamber’s call. Adkisson commended KRS for endorsing the audit and suggested to the oversight board that they take action sooner than later.
“We strongly believe a comprehensive, independent, performance audit will result in positive recommendations for moving forward and assuring the public we are making the best possible decisions with their tax dollars. I would encourage this committee to formally recommend the Legislative Research Commission (LRC) approve the expenditure from existing LRC funds to expedite the audit, rather than waiting for the enactment of the budget. There’s no reason to lose a year waiting around,” Adkisson said.
Also dealing with transparency, Adkisson suggested the committee take a deeper look into the use of placement agents by the retirement systems. The concern comes after reports of KRS paying big investment fees to money management firms to the tune of 75 percent higher than what the system has previously reported. Each of the state’s two biggest retirement systems take a different approach to the use of placement agents, something Adkisson said should be investigated by the group.
The biggest pension issue being discussed in Frankfort continues to be underfunding of the Kentucky Teachers Retirement System (KTRS). Adkisson noted to the oversight board that he is serving on a governor-appointed work group looking into solutions for the system.
At a recent meeting of the KTRS work group, Adkisson suggested the group look at the possibility of a shared responsibility strategy to help shore up the system. Adkisson said Monday that the issues facing the system are too large to place on the back burner and some compromise has to be reached.
“We believe there must be structural changes in benefit to help ensure we have a system that can be sustained, but we recognize that funding must be provided to meet the basic obligations made to current teachers and retirees. Somehow we have got to meet in the middle, prepare a plan we can present to the 2016 General Assembly and quit kicking this can down the road. We have got to shore up KTRS in the 2016 regular session,” Adkisson said.
As for the additional funding needed to shore up the retirement system, there has been a lot of discussion around the possibility of bonding. During the 2015 session, legislation was proposed to bond $3.3 billion to give the system an influx of cash.
Adkisson said Monday that the business community remains skeptical about floating general obligation bonds. However, Adkisson also added that as the idea of bonding to shore up KTRS—which sits at just above 50% funded—continues to be discussed, the woefully underfunded KRS should likely also be part of the picture.
“It seems to me, we may need any bonding capability the state has to rescue KRS if it bottoms out, has to go to an all-cash position and has no ability to earn its way out of the ditch that it’s in. We can’t consider bonding for one retirement system without considering it for the other,” Adkisson said.
Watch Adkisson’s full testimony below:
KRS is endorsing the audit, because they think they can control the terms and who will do the audit. There are consulting firms (specifically one firm Funston) that specialize in “white wash” performance reviews and audits. For example with the last financial audit by Edelen, KRS did not allow him to look at the investment fees.