State Journal, Frankfort, Sept. 1, 2015
KTRS has healthy return, but many issues remain
By Brad Bowman
While the Kentucky Teachers’ Retirement System celebrated a 2.1 percent healthier return for its fiscal year than other U.S. pension systems, the pension workgroup still has a lot of ground to cover before finding recommendations for the 2016 legislative session.
Thursday the KTRS staff shared the 5.1 percent return results with the Board of Trustees’ Investment Committee showing it had outperformed other pension systems across the nation that have more than $1 billion in assets.
Abel Noser, a trade analysis firm, did an examination of the pension system’s investments and found the pension system had saved $2.7 million by its timing of trading 143 million shares with lower commission costs.
The challenge for members in the workgroup will be maintaining a benefit package that both retains current teachers and attracts new talented educators to the commonwealth.
Benefits, revenue
With a Dec. 1 deadline to come up with recommendations, some members of the workgroup think there is ample time to find a solution for the KTRS pension system, including its $1 billion additional budget request to the General Assembly.
Jason Bailey, executive director for the Kentucky Center for Economic Policy, told The State Journal that conservatives have circled around benefit changes for new hires and accrued sick leave that is paid out to teachers when they retire.
“Overall compensation, wages and benefits aren’t much different than other comparable states,” Bailey said. “The big thing is what if you change that (sick leave and other benefits) what happens now? You’ve got a lot of employees who could retire and that would create a huge number of vacancies statewide.”
According to Beau Barnes, deputy executive secretary of operations and general council for KTRS, one in four teachers statewide is eligible for retirement and if that benefit was taken away it could be disruptive.
“You have a public policy decision to make there as well,” Barnes said. “Sick leave is very important to them (teachers) and school districts see that as a way to encourage teachers not to use sick days to disrupt the classroom. I don’t think that would be an issue for existing teachers. It may be considered as a part of a new benefit tier (for new hires).”
Any benefit change will impact the future of the state’s educators and costs to the commonwealth.
If it’s advantageous for teachers to work longer, Bailey said, then the state would have an older workforce, which could cause the state’s cost to go up as veteran teachers have bigger salaries.
Has to find money
Whether the workgroup suggests using a bond to make up the difference in the KTRS budgetary request and, most importantly, to pay the annually required contribution (ARC), Bailey said with whichever approach lawmakers take eventually the state has to find the money.
“The issue I brought up that hasn’t been discussed yet but I feel like has to be on the table is the issue of revenue. Even if you issue a bond all you are delaying for a few years is paying the full ARC,” Bailey said.
“You aren’t materially changing the ARC a whole lot,” Bailey said. “Where are those resources going to come from? In 2013 when they passed a pension bill for state employees, it included revenue to pay the ARC — not a new idea.”
Sen. Majority Leader Damon Thayer, R-Georgetown, a workgroup member said he is glad that testimony so far hasn’t been 100 percent in favor of bonding, echoing the Senate’s opposition to Democratic Speaker Greg Stumbo’s bonding proposal in the 2015 session.
“I’m pleased we are looking at structural and systemic changes for new hires that could save the state money,” Thayer said. “I’m not ready to make any proclamations yet. It’s clear many states have made structural changes (in their benefit packages). I think for future hires everything should be on the table.”
The balance will be the greatest challenge, Barnes said.
“Retirement is a vital part of education in Kentucky because it is a recruitment and retention tool. Whatever changes are made to the existing pension plan are going to have to be reasonable,” Barnes said.
“If they are not then … it will be difficult to compete in the marketplace to get quality teachers, which we need.”
Barnes said the results of the audit of KTRS’ current actuaries will be available Oct. 15.