A top state pension executive told legislators on Wednesday that a bill requiring greater transparency of the pension systems for Kentucky's public employees would be harmful to his agency.
Regardless, a Senate committee unanimously approved the bill.
The bill would make the pension systems for state workers, teachers and state officials subject to open records requests. Pension managers would also have to disclose investment holdings, fees and manager commissions. Investment contracts would be subject to review by the state auditor and legislative committees.
State Sen. Joe Bowen, a Republican from Owensboro, said the changes have been demanded by Kentucky residents.
“They want accountability, they want transparency and they want us to have the capacity to be proactive on these challenges that we’re facing in today’s world, as opposed to being reactive,” Bowen said.
The retirement systems have come under scrutiny in recent years as pension funds have grown increasingly underfunded.
One fund managed by the Kentucky Retirement Systems has only 17 percent of the money it needs to make future payouts. The teacher pension system has about 42 percent of the money it needs.
Part of the blame goes to governors and legislatures over the past two decades who did not allocate adequate funding for the systems.
But the pension systems’ practices have been questioned and are hidden from public scrutiny.
Kentucky laws enacted in 1992 and 2008 exempt pension funds from revealing investments under the state Open Records Act. Pension officials say that opening up investments to the public would reveal the secret recipe of their investment strategies.
Bill Thielen, the executive director of Kentucky Retirement Systems, said the transparency measures would disrupt the KRS board’s decision-making process.
“We have a 13-member board that spends an awful lot of time becoming familiar with the system that is in the best situation to make those kinds of decisions,” Thielen told the Senate committee.
Thielen especially took issue with the requirements to have KRS contracts approved through the state’s procurement code, which requires a request for proposal, or RFP, process.
“We have a very extensive due diligence process in the hiring of investment managers,” Thielen said. “If we have to go through an RFP process, we’re going to get responses to RFPs from many firms that are in no way qualified to invest our assets.”
Thielen had planned on retiring at the end of last year, but the KRS board extended his contract through next year and gave him a 25 percent raise. The move was criticized by Sen. Jimmy Higdon and then-incoming Auditor Mike Harmon. They said Thielen shouldn’t have taken the raise while the system is so underfunded.
The bill would also require legislative approval of each pension system director and the systems' trustee board members.
Gov. Matt Bevin is pushing for an independent audit of the pension systems, and Harmon is conducting his own inquiry.
