KRS

The Kentucky Chamber of Commerce wants a full performance audit of the troubled Kentucky Retirement Systems.

Chamber President Dave Adkisson Thursday called on state Auditor Adam Edelen to look into KRS, which is rated as one of the most underfunded pension plans in the nation, with only about 45-percent of the assets needed to cover its retirement obligations.

Adkisson said his group is especially concerned about the burden placed on the actuary who advises the system.

“The assumptions they make lead to KRS recommendations, and a request for money that goes to the Governor,” Adkisson said during a conference call with reporters. “The Governor has to utilize that information to build his budget that goes to the legislature, and all of this is predicated on the assumptions of one actuary. And KTRS, the teachers’ retirement system, uses the same actuary.”

Adkisson says a KRS audit should also look into the amount of investment fees paid by the system, and how that compares to other states. An estimated 30-percent of KRS investments are held in hedge funds and private equity funds, which charge high fees and whose holdings KRS agrees not to reveal.

KRS To Receive $23 Million From BOA Settlement

Aug 21, 2014

The U.S. Department of Justice announced a $16.6 billion settlement between six states’ attorneys general and Bank of America Thursday over fraudulent mortgage-backed securities that fueled the 2008 financial crash. The settlement  includes $23 million for investments made by the Kentucky Retirement System.

Kentucky Attorney General Jack Conway announced the details of Kentucky's share of the settlement in a conference call from Washington.

He said the state will recoup $23 million toward $21.6 million in losses incurred by KRS over fraudulent securities that the pension's investment team purchased from BofA and its subsidiaries.

"Classic securities fraud 101. In essence, that Bank of America entities knew that they were packaging subprime mortgages into the securities that they were marketing yet were not informing investors about the risk inherent in the securities they were selling," said Conway.

Alix Mattingly/KyCIR

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.

You can read the full story here.

The KyCIR's James McNair reports that KRS "only has enough assets to cover about 45 percent of its obligations to its current and future retirees."  That's a $17.6-billion shortfall as of mid-2013.

Kendrick Mills, a former city of Louisville firefighter,  relies on a 26-year pension for two-thirds of his household income. He's also a retired investment adviser.

“I want to know what’s in the funds. I want to know the cooking,” Mills told the KyCIR. “It amazes me that the secrecy doesn’t cause an uproar.”

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.

Beshear Pleased With Appeal in Seven Counties Case

Jun 11, 2014

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.

A Kentucky city is suing the state's public pension system over its investment of county employees' retirement money into "risky" hedge funds.

An attorney for Ft. Wright, a northern Kentucky city of 5,700, filed a class-action lawsuit Monday alleging that Kentucky Retirement Systems improperly used money from one of its subsidiary funds to make investments that were illegal under state law.

The civil suit, filed in Kenton Circuit Court, alleges that KRS put an "unreasonably large percentage" of money from a subsidiary fund -- County Employment Retirement System (CERS) --  in "high risk investments which are not appropriate investments for fiduciaries under the common law of Kentucky."

KRS has come under increasing scrutiny over the last couple of years due to poor performance, investments in risky hedge funds and, more recently, the handsome fees those hedge funds reaped from its contracts with the state's beleaguered $15 billion pension system. KRS was recently named among the worst-funded pension system in the nation, at under 24 percent funding.

The lawsuit seeks a court order of damages in total of at least $50 million, which Ft. Wright argues was spent on "management fees" charged by hedge funds and private equity groups per KRS' investment strategy. The lawsuit also seeks to establish a separate investment portfolio for the subsidiary fund, CERS. This would effectively divorce it from the current system whereby CERS' assets are "co-mingled" with KRS.

Fitch Names KRS Pension Worst-Funded in Nation

May 19, 2014

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.

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.