Reporter Jim McNair talks to Kevin Willis about his investigation into the use of hedge funds by Kentucky Retirement Systems.
Kentucky's underperforming retirement system for state employees keeps secret details of its so-called "alternative investments," and critics are calling for more transparency so the risks and potential pratfalls can be fully assessed.
In its latest story, the Kentucky Center for Investigative Reporting looks at the secrecy behind where the Kentucky Retirement Systems makes its alternative investments—and the concerns it raises.
The troubled Kentucky Retirement Systems pension is firing back at a lawsuit filed by a small Northern Kentucky town over what it alleges are “high risk investments” made by KRS.
In June, the city of Ft. Wright -- population 5,700 -- filed a civil suit against KRS over risky investments into Wall Street hedge funds with public money, seeking $50 million to cover the losses and to divorce its city and county employees from the state system.
KRS fired back with a motion last week claiming that the city lacks the proper legal standing to do so, and is asking Kenton Circuit Court to dismiss the claim.
Specifically, KRS argues that the types of alternative investments it makes into hedge funds are allowed by state law, and that circuit court is an improper venue for the suit because it is an administrative agency.
KRS’ motion will be heard Monday in Kenton Circuit Court.
Kentucky lawmakers are mulling over ways to deal with a lawsuit between quasi-governmental agencies and their financial relationship to the beleaguered Kentucky Retirement System.
Last year, Seven Counties Services, a mental health nonprofit that contracts with state government, filed for bankruptcy over its pension debt. When a federal judge ruled last month that the nonprofit didn’t have to pay those obligations to the Kentucky Retirement System, KRS executive director Bill Thielen said his organization would appeal the decision.
If that effort fails, the remaining employers in the pension system could foot a $2.4 billion tab to cover the cost of the added liabilities.
Thielen says he supports legislation like that crafted by Republican Sen. Chris McDaniel that would require groups like Seven Counties who voluntarily withdraw from the retirement system to pay off their pension obligations.
“They would only be able to withdraw having fully paid their obligation, and that’s what we believe should be the case, otherwise all the other participating employers are going to have to pick up the tab,” Thielen told lawmakers Wednesday.
McDaniel’s bill died in the House this year, but lawmakers say they’ll continue studying their options as the appeal in the case drags on for the next couple of years.
The Kentucky Retirement System Board of Directors will have a private meeting today to discuss a recent bankruptcy ruling that could threaten the financial future of the system and its 300,000 participants.
A federal bankruptcy judge ruled last month that "Seven Counties", a private community mental health center that has filed for bankruptcy, is free to leave the Kentucky Employees Retirement System. State officials fear the decision will allow other community mental health centers to also leave the system and require taxpayers to cover the cost.
The Kentucky Employees Retirement System is the worst funded major public pension system in the country, according to Fitch Ratings, with an unfunded liability of $17.1 billion.
Financial documents show that the Kentucky Retirement Systems dramatically underperformed last year, when compared to its cousin, the Kentucky Teachers Retirement System.
Last year, the Kentucky Retirement Systems' investment portfolio brought in about one billion dollars less than the Kentucky Teachers Retirement System.
According to Chris Tobe, a former trustee to the Kentucky Retirement Systems turned whistleblower, that means Kentucky is home to one of the best-performing public pensions, and, in the case of KRS, one of the worst.
“It really kind of tells you all the things wrong with the pension plan as far as administration. And all the right things to do,” said Tobe.
Moreover, last year the KRS underperformed the average public pension's investment plan by about $500 million.
Tobe says last year was such a bad year for the pension that KRS’ portfolio must outperform its projections for the next five years to make up for the hit.
A whistleblower and former member of the Kentucky Retirement System’s board of trustees is disputing claims that the pension plan hasn’t used placement agents recently. Chris Tobe is an investment expert who served on the system’s board for four years. He’s also the main witness in a Securities and Exchange Commissions investigation into KRS and its previous uses of placement agents.
A group of Kentucky lawmakers has a new summer assignment: shoring up the state’s failing pension systems. At least two of Kentucky’s six pension plans are at a high risk for failure. And their troubles have been highlighted by Bloomberg, the New York Times and the Pew Center.