Louisville educators who support a lawsuit seeking to recoup lost money from Kentucky's underfunded teachers' pension system clashed this week with the head of the Jefferson County teachers' union.
The Kentucky Teachers' Retirement System serves about 145,000 teachers across the state and is underfunded by about $14 billion, largely because the state legislature hasn't in recent years provided the necessary contributions to keep it solvent. New state pension accounting standards to be enacted starting this year will compound that $14 billion liability, raising it to about $22 billion.
The issue was at the center of a panel discussion Monday in Louisville that included Jefferson County Teachers Association President Brent McKim and Chris Tobe, a state pension expert and former Kentucky Retirement Systems board member.
If the legislature fails to take action, the pensions could enter a "death spiral" where it may not be able to make sufficient investments or meet its obligations to pensioners, Tobe and McKim said.
Some, including Tobe, estimate that could happen by 2036.
New pension accounting standards could place Kentucky's teachers' retirement system among the worst-funded in the U.S.
The new standard from the Governmental Accounting Standards Board, set to go into effect this year, will take a more holistic approach to government pension accounting. As a result, the state will be required to provide a more accurate accounting of its various pensions' liabilities.
As a result, the new standards will place the funding ratio of the KTRS pension to about 40-percent funded, said Chris Tobe, a Democratic candidate for state treasurer and former Kentucky Retirement Systems board member.
The current unfunded liability of the Kentucky Teachers Retirement System stands at 51.9 percent, which works out to about $14 billion in unfunded retirement moneys. Under the new federal standards, that liability will increase to about $22 billion, said KTRS legal counsel Beau Barnes.
The $20 billion budget passed by Kentucky lawmakers underfunds teachers’ pensions, giving the system hundreds of millions of dollars less than requested to keep it afloat.
Public school teachers in Kentucky don’t get Social Security benefits. They can’t even claim their spouses’ either. So that makes their pensions all the more important.
But the already tight-as-a-snare-drum budget passed by lawmakers continues to underfund the Kentucky Teachers Retirement System by about half the amount they need to bring the system -- which is currently about $13 billion short -- into the black.
Beau Barnes is general counsel for the KTRS. He says that changes in federal accounting laws will only compound the problem.
“The sooner the funding issue can be addressed, the better, because the longer it takes, the more difficult it’s going to be to address because the funding status will continue to decline,” said Barnes. “The GASB accounting measure of unfunded liability would have the pension fund running out of money in about 2036.”
Barnes says he’s optimistic the situation won’t come to that, and is looking forward to working with the governor and the legislature to address a problem to which, so far, they’ve given little more than lip service.
Chris Tobe's interview with WKU Public Radio about the harsh reality facing Kentucky's pension programs
Chris Tobe is a man who is currently playing the role of “bearer of bad news.”
He worked as a trustee with the Kentucky Retirement Systems from 2008 to 2012, where he got an up-close-and-personal look at how the state’s pension systems were being underfunded. Tobe is also the author of the book Kentucky Fried Pensions, and he makes presentations around the state detailing the crisis facing the commonwealth’s pension programs.
While Gov. Steve Beshear and state lawmakers from both parties have hailed pension reform efforts passed in 2013, Tobe says it’s a drop in the bucket compared to what is needed to fix the underfunding issue.
Compared to the rest of the nation, Tobe believes “Kentucky is probably second worst to Illinois” when it comes to the health of its public pension programs.