The following letter was sent to the Interim Joint Committee State Government in December of 2013 from Mr. Gary Harbin, Executive Secretary of the Kentucky Teachers; Retirement System (KTRS):
“Kentucky’s pension woes are the result of years of over-promising and underfunding by the General Assembly and previous governors. Also to blame: Secrecy and mismanagement by pension administrators and their investment firms.”
From the article:
Tom Eblen, Lexington Herald-Leader | October 20, 2017
HOW IS KTRS Funded?
- KTRS has an 11-member Board of Trustees that make funding recommendations to the Governor prior to submission of the Governor’s budget proposal to the General Assembly.
- The 11-member Board of Trustees makes recommendations to the Governor and that Governor – based on those recommendations and what they have seen – puts into their budget the amount of money they feel is appropriate to go into the system.
What is the makeup of the 11-member KTRS Board of Trustees?
- Two, the education commissioner and the state treasurer, serve by reason of their office.
- Two are appointed by the Governor and, as a requirement, must have prior investment experience.
- The remaining seven trustees are elected by teacher retirement system members (both current retirees and active teachers) to staggered four-year terms.
- Kentucky law requires that four trustees be active members, one trustee be a retired member and two trustees be from outside the teaching profession.
- Day-to-day operations are led by the executive secretary hired by the board.
- There is no legislative input as to who sits on the KTRS board.
Has the Kentucky General Assembly ever under-funded pensions below what the Governor has recommended?
“In the 20 years I’ve served, the General Assembly has met exactly the amount of money that the Governor has requested with regards to funding these retirement systems, regardless of a given governor’s political affiliation.” – Kentucky Senate President Robert Stivers
- Remember that in KTRS, the day-to-day operations are led by the executive secretary who is hired by the board. That secretary’s name is Gary Harbin.
- Based on a letter that Mr. Harbin submitted to the Kentucky General Assembly, the unfunded liability for KTRS was $5.9 billion at the end of Governor Ernie Fletcher’s last budget in 2008.
- By the close of fiscal year 2013, the unfunded liability had grown to $13.8 billion, an increase of $7.8 billion in KTRS alone.
Based on the funding requests made by the KTRS Board to the Governor, the Governor’s proposed budgets under-funded the requests of KTRS by $734 million over this six-year period.
- The General Assembly then passed budget bills that funded KTRS at the level requested by the Governor.
- Of the $7.8 billion added pension liability that Kentucky gained between 2008 and 2013, only 9 percent ($734 million) could be attributed to “overpromising and under-funding by the general assembly and previous governors.
- Are we, as legislators, ignoring that nine percent? Absolutely not. But let’s take another look at how the other 91 percent, or approximately $7.1 billion, accrued over these six years…
To summarize the nature of this $7.8 billion funding problem, the General Assembly funded exactly as the Governor requested, or greater, until Governor Bevin assumed office (and the General Assembly, along with Governor Bevin actually went higher than the systems requested starting in 2016).
- Are we, as legislators, shouldering the blame for this problem? No.
- We acknowledge that the budgets voted on and passed by the General Assembly were not always funded to the level in which they needed to be funded.
- But it should be noted that 91 percent of this problem is systemic. It’s the system’s funding problem far more than it is the legislature’s funding problem.
Even if the General Assembly had gone above the Governor’s budget recommendations to meet the KTRS board’s requests from 2008-13, there would still be a $7.1 billion unfunded liability problem over this six-year period.
- The system is broken, so Kentuckians should understand the need to repair and fix these broken pension systems.
- This sentiment and example is indicative of all of Kentucky’s retirement systems.
- This example just clearly illustrates one area (KTRS from 2008-13) in writing.
- Do we as legislators value our state employees and educators in Kentucky? Without a doubt!
- The reason we’re taking extraordinary steps to protect and ensure state employees are provided the ability to retire after 27 years of service and continue to receive their pensions, is because we value them tremendously!
- But if we do not take action NOW, the problem will only continue to get worse.