Kentucky’s unfunded public pension liability has grown from $30.5 billion to $32.6 billion, a debt that threatens to undermine every other service the state provides, an oversight panel was told Monday.
The financial outlook continued to weaken in Fiscal Year 2016 for the Kentucky Retirement Systems and Kentucky Teachers’ Retirement System, from which 487,000 people combined either draw pensions or expect to in the future. […]
“If you think of it as a bathtub, the water is going down,” KRS interim executive director David Eager told the Public Pension Oversight Board during Monday’s hearing. “We are where we are, and we’re going to work to get our way out of it.”
The primary KRS pension fund for state government employees has only 16 percent of the assets it’s expected to need to cover promised benefits, down from 17 percent in 2015. The chief KRS fund for local government employees has 59 percent of the assets it’s expected to need, down from 60 percent. The KRS fund for Kentucky State Police has 30 percent of the assets it’s expected to need, down from 33 percent.
The KRS fund was overexposed to market volatility, underfunded, and subject to changing actuarial assumptions that were influenced by political calculations. Meanwhile, the state’s “inviolable contract” mandates that benefits never be reduced or impaired, making it nearly impossible to reform the system.
Until recently, not much attention had been paid to the Kentucky Teachers’ Retirement System (KTRS), but it’s in nearly as bad shape as the KRS fund. In 2015, then-Governor Stephen Beshear (D) tried to reform the system to move teachers to a defined-contribution plan. But in Kentucky, teachers don’t participate in Social Security and the defined-contribution plan would only have given them half of what they had expected to get from their pensions. Meanwhile, the plan didn’t address the roughly $14 billion in outstanding liabilities.
Unsurprisingly, Beshear failed and his Republican successor, Governor Matt Bevin, has not pushed anything as comprehensive. He has, however, tried to increase transparency in the pensions system. That would be a good start because often we don’t even know how big the problems actually are. Still, the numbers don’t add up. That means Kentucky may have to raise taxes or ask the federal government for a bailout. If it’s the latter, the Senate Majority Leader Mitch McConnell, who represents Kentucky, is going to find himself in a difficult position. No matter what, Kentucky’s fiscal future looks exceedingly grim.