For months, Kentucky lawmakers have been studying how to handle Kentucky's underfunded pension system. But the problems of the system have been occurring for longer than just a few months. Various proposals are on the table, but lawmakers may not have much time to come to a compromise.
Richard and Denise Woods are two Kentuckians who will be impacted should the pension system collapse.
The Woods are retirees with Kentucky state employee pensions, and they planned to fill their retirement with trips to Europe and visits to grandchildren in Georgia.
But prices for gas and plane tickets are going up. And Kentucky’s pension system isn’t. The Woods worry that the checks they use to finance travels will stop coming.
“You hear about these cities out in California going bankrupt and all. And I think there’s two so far out there that’s filing for bankruptcy,” says Richard. “So it’s not unheard of, you know when other cities see that somewhere else that’s a possibility, that can happen and we can do that, then it is a fear about our retirement system.”
At one time, Kentucky’s pension systems were so flush with cash that lawmakers frequently raided the fund to help pay for other state government expenses.
But they never put the money back. Then the recession hit. Then baby boomers started retiring.
Now, the system is in crisis. Financial publications routinely list Kentucky's pensions among the worst in the nation, and it's unlikely an economic recovery alone could reverse them.
“No, it cannot,” says Bill Theilen, the interim CEO of KRS. “And our outside consultants and our internal investment staff and our actuaries have told us, basically we cannot invest our way out of this situation.”
“Apart from the influx of additional funds, I’m not sure there is any kind of solution as long as the promised benefits are to be paid.”
To spell it out clearly: the funds need more money, NOW, to pay benefits for current retirees. They'll need even more to pay employees who are hoping to retire soon.
Bankruptcy is beginning to look like an option. One of the U.S. islands in the Pacific has done so. But a state never has. And it’s not a topic KRS officials want to approach.
“Well I certainly don’t want to talk about bankruptcy,” says Theilen. “I will say that our actuary has told us that if we meet all of our actuarial assumptions exactly as their set and if the General Assembly pays what they have indicated they will pay under House Bill 1, then we’ll come close to running out of funds in the KERS non-hazardous plan. But we’ll not run out of funds and it will start going back up around 2020 or 2021.”
Retiring state Representative Mike Cherry of Princeton is a co-chair of the task force that's looking into the pension problems. And he says bankruptcy is not an option.
“There’s things we can and will do, and I don’t think that’s part of the discussion.”
But so far, it’s not clear what IS part of the discussion. Various proposals are out there… including a switch to a 401K-style plan, but Democrats reject at that plan.
There’s also the opportunity for a quick influx of cash through bonds, but Republicans don't like that idea.
This disagreement leaves current and future retirees in as much flux as the systems they’ve paid into for decades.
And it continues to stir up fears for retirees like the Woods that one day, that pension they’ve worked years for will no longer exist.
“There is that promise there that we’re guaranteed that pension. You know we pay into it,” says Richard Wood. “And of course the state, they pay into it as well. But it’s written in there that it should not be denied from us.”
“But yeah, it worries us that it could possibly be broken.”