Like "The Walking Dead": Kentucky's Pension Liabilities Creating Nightmare Scenarios

Jan 23, 2014

AMC’s hit zombie-apocalypse-drama ‘The Walking Dead’ is a story about a shambling mass of the undead that brings civilization to its knees.

Chris Tobe says the show is an apt metaphor for what will happen if Kentucky lawmakers don't get serious about funding the state’s pension systems.

“I think we’re going to be ‘The Walking Dead’ for a long time,” Tobe says. “We’re all gonna keep saying, ‘oh, we’re just fine,’ and we’re gonna be ‘The Walking Dead’ for a long, long time.”

Tobe is a former trustee of the Kentucky Retirement Systems turned whistleblower who has over 30 years of public and private experience in financial investments. He's also a private consultant for pension funds elsewhere.

He says that for over a decade, legislators and governors from both parties have underfunded the Kentucky Employee Retirement System, or KERS, which provides pensions to state employees.

Currently, there's only enough money in the fund to pay about a quarter of the liability, which is what it will need to pay out in benefits.

Tobe says it's one of the worst in the nation.

“The KERS is definitely a zombie pension,” Tobe says.

But all those retirement bills don't have to come due for this to cause trouble. Tobe says the pension issues are likely behind the state's credit rating downgrade. Now, when bonds are issued to pay for construction, the interest rate on the debt is higher.

It's not that lawmakers are unaware. Last year, they passed a measure requiring $100 million to go toward KERS.

But Tobe says that's only slowing the decay.

It's not just a problem with the KERS. Kentucky has two other large pension funds, one for teachers and one for county employees.

The head of the teacher retirement system, Gary Hardin, told lawmakers in September the pension will need far more than lawmakers are allocating, with the program needing $390 million in the first year of the next biennium, and $400 million in the second year.

The situation is dire enough that Harbin told lawmakers he is considering selling state land to shore up the fund.

But while it did restore funding to schools, Beshear’s budget proposal passed on teacher's retirements, effectively kicking the can down the road, and directly at the next governor.

When reporters asked why, Beshear responded with a question of his own.

“Where’s the money gonna come from? You know, the short answer is we don’t have any extra money to infuse into that system,” Beshear said.

Beshear's office says the governor’s budget does include language to address the issue, just not any time soon.

“The language expresses our intent to create that mechanism that will eventually start putting money in there,” the second-term Democrat said. “But in all honesty, over the next two years, there is no money created with that intent to put into the system.”

Aside from not addressing pensions beyond a $100 million commitment to KERS, Beshear's budget doesn't count on the state generating any new revenue to go toward pensions or any other programs. No tax reform. No expanded gambling.

Tobe, the former trustee of the Kentucky Retirement Systems turned whistleblower, says it'll take that--or a federal bailout--to fully fund pensions. But none of those options are very popular. Neither is the pension topic.

“People don’t believe you when you say you need money because they felt they’ve been lied to for so long,” Tobe says. “So there is a whole cultural thing there that I think we need to at least get started on trying to get honest with people about what the situation is. And maybe the next governor probably might be doing that. Because, I mean, he is starting in a very big hole.”

And now, as both chambers of the General Assembly gear up for closed-door budget talks, they may consider adding revenue or addressing pensions again.

Tobe says it’s more likely you’ll run into a zombie first.