Governor Steve Beshear says he is pleased with a decision by the Kentucky Retirement Systems to appeal a recent ruling that would allow quasi-governmental agencies to withdraw from the beleaguered public pension system.
Earlier this month a federal judge ruled that groups like the mental health nonprofit Seven Counties Services, which is currently filing for bankruptcy as a result of its pension debt, could exit KRS because they aren’t government agencies.
Beshear says that if the decision is upheld, it would create millions of dollars in new unfunded pension liabilities.
“It is a very dangerous ruling, in terms of the financial stability of our pension system. And so I want to make sure that that gets a full hearing and hopefully will get overturned on appeal,” said Beshear
The Kentucky Employee Retirement System’s total unfunded liability is about $17 billion.
Global credit agency Fitch Ratings has named one of Kentucky’s pensions as the worst in the nation. The non-hazardous pension under the Kentucky Employee Retirement System has about a quarter of the money it would need to pay out what will be owed to pensioners.
Todd Green is a senior actuary for Cavanaugh MacDonald, an accounting firm that examined five years’ worth of the state’s pension data. He says the pensions have been neglected and money hasn't been put in them and kept in them.
“The source of that is the prior underfunding, so it’s not, it’s an accumulation of lots of things that weren’t being done right, ” said Green.
At a recent meeting of the Kentucky Retirement Systems’ trustees, the body declined to act on recommendations that the pension downgrade its projected investment returns. Bill Thielen is the director of KRS. He says that could result in more money being paid by the legislature toward the fund.
The Kentucky House budget committee has advanced a bill designed to provide extra revenues for the state's underfunded pension systems.
House Bill 416 would use revenues from the expansion of Instant Racing if the state Supreme Court upholds the legality of the game. It will also use expanded lottery sales and the proceeds from a new Keno game.
House Speaker Greg Stumbo says the bill does not ask lawmakers to legalize Instant Racing.
"We're simply saying if it is upheld, here is a fund that captures this money that's used to pay off this unfunded liability in our pension fund. So we're not asking you to vote to expand gaming," said Stumbo.
Lawmakers are looking to the lottery for a source of revenue to shore up Kentucky's financially troubled pension system for government retirees.
Rep. Brent Yonts, chairman of the House State Government Committee that oversees pensions, said Friday the latest proposal would institute a 6 percent sales tax on lottery ticket sales and implement new games, which could include Keno.
The Greenville Democrat said a lottery tax could generate $49 million a year and that adding more games could generate $70 million to $90 million. He said those actions could be enough to cover the state's full contribution to the pension system, which has a $33 billion unfunded liability.
Yonts' committee is scheduled to vote on pension legislation next Tuesday. The House Appropriations and Revenue Committee would vote separately on the lottery proposal.
Kentucky lawmakers have passed the halfway point in the current legislative session without a deal in sight to shore up the financially troubled pension system for government retirees.
They have only 14 working days remaining before adjourning for the year. However, Gov. Steve Beshear has said he may call lawmakers back into special session if they adjourn without taking action to bolster the pension system, which has a $33 billion unfunded liability.
The Senate passed a measure earlier this month that requires the state to fully fund the pension system but that did not specify where the money would come from.
The House is considering a variety of options to pay the state's contribution, including raising the cigarette to $1 a pack to generate about $100 million a year.
Kentucky legislative leaders say solutions on how to pay for Kentucky’s underfunded pensions won’t likely be addressed in the 2013 legislative session.
Both House Speaker Greg Stumbo and Senate President Robert Stivers say there will likely be a bill to introduce changes to the pension systems. But they also agree that such a bill is unlikely to deal how to fund the changes.
What they disagree on is when to deal with the funding solutions. Stumbo says pension funding should be dealt with in a special session, hand in hand with tax reform.
“There’ll be a bill, I don’t know whether it will be addressed," Stumbo says. "I think that we need, probably, to address the entire issue and that include the funding mechanism."
But Stivers says lawmakers should pass the changes now and deal with fully funding the pension system starting in 2014, when a new budget must be passed.
Kentucky's state pension plans have problems, and a bipartisan legislative task force has approved sweeping recommendations to overhaul them -- including putting new employees in a hybrid plans akin to 401Ks.
The task force -- with an 11-1 vote -- is recommending that the General Assembly start fully funding their pension contributions starting with the next budget in 2014. Lawmakers’ inability to do that is part of the pension plans problems.
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.
Gov. Steve Beshear says he hasn't reached a conclusion on whether Kentucky should borrow enough money through the sale of government bonds to shore up the pension systems for state and local employees. The state employee retirement plan faces a $19 billion shortfall. Add to that the financial woes in plans covering local government employees, state police, teachers, lawmakers, judges and other court workers, and the shortfall reaches $30 billion.
A former financial planner for the Kentucky Pension Systems says an international banking scandal is leading to millions of dollars in losses for Kentucky agencies. Financial analyst Chris Tobe believes the pension systems have lost money due to the false interest rates associated with the LIBOR banking scandal.