The heads of Kentucky’s ailing pension systems are requesting that the state pay about $1.3 billion more into the funds over the next two years, further straining the state’s cash-strapped budget.
Collectively, the retirement systems for Kentucky’s state workers are among the worst-funded in the nation.
The amount of money needed to keep the systems afloat has snowballed in recent years due to historic underfunding from the legislature, poor investment performance in the wake of the recession and stagnant wages for state employees.
But David Eager, the executive director of Kentucky Retirement Systems, the agency that manages most state worker pension plans, said, “we can see the light at the end of the tunnel.”
“It’s very small, it’s a long way away and it’s going to take a lot of effort to get there,” Eager said. “But for the very first time we’re going to see some projections of the unfunded [liability] flattening out. So we’re not digging ourselves any deeper, we’re flattening out. That’s great news.”
Nonetheless, the $5.4 billion total requested by Kentucky Retirement Systems and Kentucky Teacher Retirement Systems amounts to around a quarter of the state’s two-year $21 billion budget, and the state already has trouble bringing in enough tax revenue to cover obligations.
KRS manages pensions for about 365,000 active and retired state workers, and KTRS oversees pensions for about 130,000 current or retired K-12 school teachers and university faculty.
Both systems were nearly fully funded in the early 2000s. Now, the largest segment of KRS is only 14 percent funded — a $13.3 billion unfunded liability — and KTRS is short about $14.5 billion.
Gov. Matt Bevin has promised a special legislative session later this year to make changes to the state’s pension systems.
A consulting group hired by the state recommended weakening pension benefits for current and retired state workers by shifting future state employees from defined benefit retirement plans to 401(k)-style plans and raising the retirement age to 65 for most state workers.
The report prompted an uptick in state employees retiring out of fear that lawmakers would approve changes to the retirement plans of active employees.
David Eager, executive director of KRS, told the Public Pension Oversight Board on Monday that about 6,000 state workers are currently eligible to retire with full benefits.
He said if “they retired tomorrow,” the system would have to come up with between $90 million and $100 million more per year to make up for the lost contributions from state worker paychecks.
“We can handle that, we wouldn’t want it to go on for a long period of time, but it wouldn’t be catastrophic,” Eager said.
Eager said retirements are up more than 13 percent compared to last year.