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Kentucky Lawmakers Still Considering $3.3 Billion Bond For Teacher Pensions

Frankfort, Kentucky - State Capitol Building
Henryk Sadura
Frankfort, Kentucky - State Capitol Building

Kentucky teacher pension officials are still asking for a $3.3 billion bailout of the system, saying it would increase the plan's funded ratio from 53 percent to 66 percent and reduce the amount the state has to contribute.

A bill that sought to authorize the bonding measure passed the Democrat-led state House, but it failed in a conference committee during the last days of this year’s legislative session.

Critics of the plan said that the bonding measure would hurt the state’s credit rating.

Kentucky Teacher Retirement Systems director Gary Harbin said rating agencies already know about the state’s debt level and the new bonds would reduce the unfunded liability.

“This isn’t going to hurt the funding level of the state because the debt’s already there and already owed to teachers,” Harbin said.

KTRS manages the pensions of about 141,000 current and retired teachers and only has 53 percent of the money it needs to make future payouts. (It’s doing better than the system that manages many of the state’s other pensions, Kentucky Retirement Systems, which is only 22 percent funded.)

KTRS officials warn that if the system doesn’t get an influx of cash, the state’s contribution  will increase from $107 million in this fiscal year to more than $802 million in 2020. That number would only grow to $408 million with the $3.3 billion bond measure, officials say.

The system has $18.1 billion in assets. But Harbin said between 2014 and the end of 2016, KTRS will have sold $1.3 billion to meet current obligations.

“This is really strapping our investment strategy, we’re pulling money away from good managers that are doing good jobs for us, selling assets in order to meet payroll,” Harbin said.

The system is also bracing itself for an influx of baby boomer teachers retiring and collecting pension checks instead of contributing to the system.

“The bottom line is you’re going to be under this pressure for a period of time and without some relief, your status in the next five or 10 years is going to become critical,” said Rep. Brent Yonts, a Democrat from Greenville. “The boiler’s going to blow up if we don’t give you a solution.”

Senate Majority Whip Jimmy Higdon, a Republican from Lebanon, said the under-funding of the teacher pension plan has been a historic problem said that present-day legislators couldn’t be entirely blamed for the crisis.

“It’s a historic thing, it’s not anything that’s happened in the last decade or the last two decades—this goes back many many years on the under-funding of the pension plan,” Higdon said.

During this year’s General Assembly, the Republican-led Senate suggested studying the pension problem—a move which failed during the session but was ultimately realized when last week Gov. Steve Beshear created a 23-member teacher pension work group.

In a statement released last week, Senate President Robert Stivers, a Republican from Manchester, reiterated his distaste for the bonding measure. Stivers said the state wouldn’t have been able to sell even $1 billion in bonds and the $3.3 billion proposal was a political move conjured by the House.

“(W)e were not about to risk further lowering our state’s credit rating by issuing the single greatest debt in the history of the Kentucky General Assembly,” Stivers said in the statement.

Two members of the Senate and two members of the House will serve on the governor’s teacher pension work group.