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Outlook for Kentucky teachers’ pension system improving

November 13, 2018

FRANKFORT, Ky. (AP) — A consulting firm says the pension system for Kentucky’s public school teachers has more money and less unfunded debt after the state legislature decided to fully pay its annual funding request.

The Kentucky Teachers’ Retirement System is about $14.3 billion short of the money it needs to pay retirement benefits over the next three decades. But it now has 57.7 percent of the money needed to pay that debt. Last year, the system had 56.4 percent of the money required to meet its obligations.

A report from Cavanaugh Macdonald Consulting showed actuaries assumed the system’s investments would grow by 7.5 percent. Instead, they grew by 10.5 percent. But pension system Executive Secretary Gary Harbin attributed the improved numbers to the legislature’s increased spending. From 2012 to 2016, the legislature never approved more than 74 percent of the system’s funding request. The legislature has approved 97 percent of the agency’s funding request in the past two years, plus 100 percent of the request over the next two years.

“This is a great turning point for us,” Harbin told members of the system’s governance and audit committee on Tuesday. “The legislature and the administration are to be wholeheartedly ... applauded for the financing they put toward this pension plan.”

The teachers’ retirement plan has been a lightning rod in 2018. In the spring, the Republican-controlled legislature made some changes to the system, including moving all new teacher hires into a hybrid plan and limiting how teachers can use sick days in calculating their retirement benefits. It also changed how the state pays off its pension debt, requiring more money at first but savings over time.

Thousands of teachers responded by marching at the state Capitol, a protest so large it forced the closure of more than 30 school districts across the state.

That law, Senate Bill 151, has been challenged in court. But Harbin said that law’s fate will not determine the solvency of the teachers’ retirement system going forward because the new spending from the legislature was authorized in a separate bill.

“The funding from the state is the primary driver,” he said.

The teachers’ retirement system is one of eight public pension plans in Kentucky that covers most of the state’s public employees, including police officers, firefighters and other local government employees. Altogether, Kentucky’s pension systems are among the worst funded in the country.

The system in the most trouble is the Kentucky Employees Retirement System’s nonhazardous plan, which covers most state workers. Last week, officials announced that plan now has just 12.9 percent of the money it needs to pay benefits over the next 30 years. Executive Director David Eager said that’s because the system is paying more in benefits than it receives in contributions and investment returns.

“We’re kind of treading water right now in that plan,” Eager said.

But Eager said things should improve slightly next year. The system’s board of trustees recently changed its investment assumptions, meaning the state will contribute 83 percent of payroll to the plan instead of 49 percent of payroll. The legislature decided to fund the increase.

“That’s going to make a huge difference for us going forward,” he said.

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