May 2015
By Madelynn Coldiron
Staff writer
While the 2015 legislative session ended with no action – not even authorization of a study – on how to address the unfunded liability in the Kentucky Teachers’ Retirement System, there is general agreement on one point:
The issue’s visibility has been raised and it will return in the 2016 session.
“It’s on everyone’s radar screen and that’s a good place to be as we go into the 2016 session, which is going to be a budget session and a longer session,” said Beau Barnes, deputy executive general counsel for the KTRS. “I hope a funding plan will be developed in 2016.”
There is “more will” for fiscal issues in a budget session, said Hope McLaughlin, KSBA’s government relations director, but added this focus on the budget could present an extra challenge.
“The difficulty will be balancing the competing needs of the teacher retirement system and adequately funding schools,” she said. “Resolving KTRS is a very important, critical issue for education in Kentucky because this is the most important recruiting and retention tool that Kentucky has to maintain quality teaching in the classroom.”
The 2015 session ended without passage of a bill that would have authorized a $3.3 billion bond issue to shore up the KTRS. It was approved by the House, but did not come before the Senate for a vote. One selling point for the bond issue was low interest rates. Barnes said while interest rates may rise before next January, “I think they may go up slowly enough that they’ll still be low enough at the time a bond could be issued that it would still make sense.”
The teachers’ pension system also will request a $510 million and $470 million appropriation respectively in each of the fiscal years in the next budget, amounts recommended by its actuary, on top of the employer contribution rate and other expenses.
During the interim, however, the system will likely be the focus of some study, both in-house and possibly by an independent entity. House Minority Floor Leader Jeff Hoover (R-Jamestown) and the Senate GOP have asked the governor to name a task force to review the teacher pension system. Co-chairs of the Public Pension Oversight Board, which now encompasses the KTRS, indicate that panel will be looking at the issues.
Board co-chair Sen. Joe Bowen (R-Owensboro) said “in all likelihood” there will be an analysis of KTRS by an outside group, similar to the work that resulted in reforms for the Kentucky Retirement Systems in 2013. “When you have outside experts, I think you have more of a willingness to buy into their findings,” he said.
The other co-chair, Rep. Brent Yonts (D-Greenville) said the board will be looking at some management issues in the KTRS system.
“They’re good people to work with, they know what they’re doing, but I think like the Kentucky Retirement Systems, they could stand some extra eyes looking over their shoulders … It makes them more keen to pay attention to exactly what they’re doing and why they’re doing it and are there other ways of doing it. I think that helped KRS and I think that will help KTRS as well,” he said.
Bowen said the $3.3 billion bond issue “was unrealistic” and risky, and urged a “measured approach” that does not further jeopardize the system.
He said the Senate Majority Caucus favors a two-pronged approach that will provide an infusion of cash into KTRS but at the same time make some structural changes in the system. “I don’t think anyone denies the fact that we’re going to have to identify a way to get more money into the fund,” Bowen said. “But going forward, new hires are going to have to look at a different plan. Now, that doesn’t mean that we’re advocating for a defined contribution as opposed to a defined benefit, primarily because of the social security issue.”
Yonts said the bond issue is a solution that carries the same risk as any other bond issue that could be affected by the national economy. “My goal is to make sure the need for that bond issue gets further discussed and hopefully, better liked,” he said.
KSBA is supportive of any solution to address the unfunded liability of KTRS, McLaughlin said. Meanwhile, the KTRS is selling off some of its assets to meet current obligations. Barnes said close to $600 million in assets will be sold in the current fiscal year and $700 million in 2015-16. He said the KTRS is getting “many, many, many calls” from concerned members.
“I think everybody is going to look for something to happen this upcoming session and I don’t think that we’re at a point where we have the liberty of not doing anything,” Barnes said. “Not doing anything in this next session is not an option.”