A group of Louisville teachers plans to file a class-action lawsuit claiming the governor and Kentucky General Assembly violated a contractual obligation by deliberately underfunding the teachers' retirement fund by billions of dollars.
Lebanon attorney Theodore Lavit said the lawsuit will name Governor Steve Beshear, Senate President Robert Stivers and House Speaker Greg Stumbo as defendants in the suit. The potential plaintiffs will seek $11 billion to restore money to the underfunded Kentucky Teachers Retirement System, which covers about 140,000 teachers across the state, according to sources familiar with the prospective case.
"Some experts believe that in four, maybe five years, at the present funding rate, that it'll be impossible to recapture what's needed," Lavit told Kentucky Public Radio. "There are quite a few teachers upset about the present state of affairs."
Currently, the KTRS pension is funded at about 50 percent, placing it well below what experts say is a pension's proper balance of its assets to its unfunded liabilities—the difference between how much money it has on-hand versus how much it has to pay out in benefits.
Put another way: It's the difference between how much money a household has in its bank account versus how much it owes on its credit card bills. KTRS has about $13.9 billion in such unfunded liabilities—a number that is expected to swell exponentially to about $23 billion in 2015 when new federal accounting standards kick in, according to the most recent numbers.
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.
Kentucky's pension systems are slated to have to pay out more than $17 billion that the state doesn't have.
The numbers come from Kentucky Retirement Systems director William Thielen, who testified before lawmakers in Frankfort Monday. He says the state's various pension funds have only a fraction of what they need to pay all potential retirees.
Thielen says if lawmakers make good on a promise to fund the pensions with the recommend amount, known as the ARC, it'll take a few years before the unfunded liability starts to drop.
“It’ll bottom out around 2018 or ‘19, and then start increasing. But, again, that depends on the full ARC being paid and for us meeting all of our assumptions, and most importantly our investment assumptions," Thielen told lawmakers.
Gov. Steve Beshear has appropriated about $200 million for KRS over the next two years.
Governor Steve Beshear says he's interested in a so-called hybrid approach to pension reform. Lawmakers are discussing how to fix the flailing public pension plans for state and county employees. They'll make recommendations at the end of the year.