A Letter from Gary Harbin, KTRS

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:

“Kentucky taxpayers should question GOP pension plan. Here’s why.”

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.

KTRS Slide.png

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…

KTRS Slide 2.png

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.

In Conclusion…

  • 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.
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Overhaul in the works for state retirees

The following article was taken from the Herald-Leader archives:

HL logo

Overhaul in the works for state retirees; LEGISLATORS SAY THEY HAVE A PLAN FOR HIGH COSTS OF PENSION SYSTEMS

Jack Brammer, Herald-Leader | March 3, 2007

In the waning days of this year’s legislative session, Senate Republican and Democratic leaders revealed yesterday they are working on a plan to overhaul the state’s financially strapped retirement systems.

Senate President David Williams, R-Burkesville, said the move could save the state more than $200 million over the next year and put in place a mechanism to address the skyrocketing pension costs in future state budgets.

Williams did not offer specifics on the plan but said it would not affect the benefits of current retirees and employees. “Obviously future hires will have to be affected,” he said.

Bill Hanes, executive director of the Kentucky Retirement Systems, said he could not comment on details of any plan being considered by legislators, but did say it would be “irresponsible” to make major changes in pension funds “in such a short time in this short session.” Monday will mark the 23rd day of the 30-day session.

In a floor speech about solving the more than $12 billion of unfunded liability in the state employees’ retirement system and the $7 billion of debt in the county employees’ retirement system, Williams said,  “Until that resolution is made, I see very little else happening in this session of the General Assembly as far as expending dollars.”

He later said he was not threatening the Democratic-controlled House but was instead trying to stress the importance of addressing the problem.

Williams said the “resolution” enjoyed support from Republicans and Democrats in the GOP-controlled Senate. He noted that it dealt with pensions and that lawmakers will wait to address the health insurance part of the retirement system problem after it hears recommendations from a special task force.

Williams and Senate Majority Leader Dan Kelly, R-Springfield, were joined by Senate Minority Leader Ed Worley, D-Richmond, in calling on the House to commit to the plan.

House Speaker Jody Richards, D-Bowling Green, said the House is “very concerned” about the retirement systems but wants to make sure that any change is actuarially sound and does not affect current retirees.

He said House Democratic leaders will meet again Monday to discuss the issue.

There are about 300,000 people in the state retirement system.

Charles Wells, executive director of the Kentucky Association of State Employees, said, “We would hope that very soon leaders would invite state employees and front-line employee groups like ours to participate in any talks about changing the retirement systems.

“We have strong concerns about reducing benefits of future employees. That could hurt the state’s ability to recruit and obtain good employees, but we have to see the details of any plan before we could judge it.”

Gov. Ernie Fletcher has recommended that the legislature provide $25 million to the state employees’ retirement system to help reduce the unfunded liabilities of its health insurance programs.

The House budget committee approved a bill with Fletcher’s provisions. Senate Republican leaders would not say how much money they might put into the retirement programs, but Kelly said changing the structure of the retirement system was more important.

Kelly described the $25 million proposed by Fletcher for the state’s retirement system as “putting two quarts of boiling water in San Francisco Bay to heat the water there. It actually would extend the deadline when our pension system would go bankrupt (by) one month.”

In a statement yesterday, Fletcher said, “We have openly expressed our concerns with the state retirement systems and our obligations to our retirees. We look forward to the forthcoming dialogue with the Senate and the House.

“We are open to any suggestions they have, realizing that the $50 million good faith effort is just the beginning of solving the problems.”

Reach Jack Brammer at (859) 231-1302 or jbrammer@herald-leader.com.

Load-Date: March 3, 2007

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This article illustrates that the Kentucky Senate has been leading on the issue of pension reform for more than 10 years. It’s time for us to take action to ensure these systems are funded for the future.

SENATOR JOE BOWEN COMMENTS ON REP. JAMES KAY’S TRANSPARENCY BILL

For Immediate Release
Contact: John Cox
859-492-2963
John.Cox@LRC.KY.GOV

FRANKFORT, Ky. (September 15, 2016) The following is a statement from Senator Joe Bowen (R-Owensboro), regarding pre-filed legislation announced yesterday from Representative James Kay (D-Versailles):

“In the 2016 General Assembly session, the Senate Majority strived to shore up the state pensions for teachers and state workers by both committing hundreds of millions of additional funds in the budgetary process, and by making the pension systems more transparent and accountable.  The full House of Representatives failed to vote on Senate Bill (SB) 2, the Senate pension transparency bill, as both standalone legislation and as part of a ‘super transparency’ bill.

On March 17th of the 2016 General Assembly session, the House State Government committee reported SB 2 favorably out of committee, with 20 ‘yea’ votes, 1 ‘nay’ vote, and 3 ‘pass’ votes.  Representative James Kay, a member of the committee, offered a “pass” vote.

Today, Representative Kay has essentially cut, pasted, and pre-filed a large portion of the contents of Senate Bill 2 from last session.  This is the same SB 2 that could not get enough support from him or House Leadership to be considered on the House floor, despite being reported favorably by the House State Government Committee.

Perhaps ‘better late than never.’  But does Rep. Kay and the House Leadership want to make substantive pension changes, or do they just want an election year issue?  There was no absence of opportunity to address these issues in the 2016 General Assembly session, but I assume these issues were not considered important to them at the time.  I am glad they now believe pension transparency and accountability are important issues.”

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U.S. SENATOR LAMAR ALEXANDER TO GIVE PRESENTATION AT SEPT. 12 IJC ON EDUCATION MEETING

SEAL

Commonwealth of Kentucky
Senate Majority Republican Leadership

For Immediate Release
Contact: John Cox
859-492-2963
John.Cox@LRC.KY.GOV

FRANKFORT, Ky. (September 7, 2016) – U.S. Senator Lamar Alexander (R-Tennessee), chairman of the U.S. Senate’s education committee and primary author of the Every Student Succeeds Act (ESSA), will join the Interim Joint Committee on Education in Frankfort on Monday, September 12, to discuss the new education law and outline the opportunities and implications for Kentucky’s General Assembly to realign education policy in the state. The meeting is slated to begin at 10 a.m. EDT and Sen. Alexander is expected to give his presentation at approximately 11 a.m. local time.

“Senator Alexander has been a leader on education reform as Governor of Tennessee, as U.S. Education Secretary, and as a United States Senator,” said Senator Mike Wilson (R-Bowling Green), who will chair the September 12 Education meeting. “Through Senator Alexander’s intellect and persuasive nature, he attracted support from the National Education Association in his efforts to reduce Federal overreach in our schools. We share a similar view that individual states should be the ones determining the best academic standards, state assessments, and accountability as well as teaching methods for their students.”

Alexander’s testimony will cover the provisions of a new federal law, the Every Student Succeeds Act, which replaces the controversial No Child Left Behind Act.

“We are excited to welcome this high-profile guest to Frankfort to lead a discussion that is long overdue,” Senate President Robert Stivers (R-Manchester) said. “I admire Senator Alexander for his commitment to strengthening education across the United States, and I appreciate him for taking the time to address this committee.”

In 2016, the nation’s governors created the James Madison Award to recognize members of Congress who support federalism and the 10th Amendment of the U.S. Constitution guaranteeing states’ rights. The governors named Sen. Lamar Alexander as the first-ever recipient of the award for his work to fix No Child Left Behind. The new education law Alexander worked to pass was signed by the president in December 2015. The Wall Street Journal called it “the largest devolution of federal power to the states in a quarter century.”

In 2013, the National Conference of State Legislatures gave Sen. Alexander and three other senators its “Restoring the Balance” Award for protecting states’ rights, the first time in 10 years the organization gave this award to U.S. senators.

Alexander, a seventh-generation Tennessean born and raised in Maryville, was twice elected governor of Tennessee. He has always believed that in most cases the best decisions are made by those closest to the people.

Today, Alexander chairs the Senate Health, Education, Labor and Pensions Committee, where he is working on legislation to bring safe drugs and medical devices to doctors’ offices and patients’ medicine cabinets more quickly.

Alexander is also chairman of the Senate Energy and Water Development Appropriations Subcommittee, where he works to boost funding for basic energy research and invest in our inland waterways and harbors.

Alexander was first elected to the Senate in 2002 and has been reelected twice. His Republican colleagues elected him three times to be chairman of the Senate Republican Conference.

He has previously served as president of the University of Tennessee and as U.S. Secretary of Education under George H.W. Bush.

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SEN.’S ADAMS, ALVARADO ISSUE STATEMENT ON KY HEALTH WAIVER

For Immediate Release
August 24, 2016
Contact: John Cox
859-492-2963
John.Cox@LRC.KY.GOV

SENATORS ADAMS, ALVARADO ISSUE STATEMENT ON KENTUCKY HEALTH WAIVER SUBMISSION

FRANKFORT, Ky. – The following is a joint statement on behalf of Senate Health and Welfare Committee chair Julie Raque Adams (R-Louisville) and vice chair Dr. Ralph Alvarado (R-Winchester):

“The current Medicaid model in Kentucky is broken. If we continue down this unsustainable path, many Kentuckians will lose their healthcare coverage and we will have less state dollars to fund education and fix pension systems. The waiver proposed by Governor Bevin is a common-sense approach to keep Kentuckians covered and become personally engaged in their own health. This waiver promotes accountability and provides a pathway to private insurance.”

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For more information on the Section 1115 demonstration waiver known as Kentucky HEALTH (Helping to Engage and Achieve Long Term Health) from Governor Matt Bevin’s Office, please visit: http://chfs.ky.gov/dms/kh.

SENATE PRESIDENT ROBERT STIVERS RESPONDS TO PRESIDENT OBAMA’S SCHOOL BATHROOM PROPOSAL

FRANKFORT, Ky. (May 13, 2016) – The following is a statement from Kentucky Senate President Robert Stivers on the recent school bathroom proposal from President Barack Obama:

With complete disregard for the Tenth Amendment of the U.S. Constitution, President Barack Obama on Friday directed every school in the nation to provide access to transgender bathrooms, threatening to take federal funding away from any school that does not comply.”

“This is yet another example of indefensible overreach by President Obama, illustrating just how out of touch his administration has been with the values of Kentucky families. I firmly believe that this should be a local issue and I am prepared to fight for the safety of our students in Kentucky.”

“I would also like to encourage our Democratic colleagues in the Senate and the House to join us in this important fight against federal overreach.”

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OP-ED: Sen. Joe Bowen on Pension Transparency

COMMONWEALTH OF KENTUCKY
SENATOR JOE BOWEN

For Immediate Release
May 2, 2016
Contact: John Cox
502-564-3120
JOHN.COX@LRC.KY.GOV

The following is an op-ed submitted by Kentucky State Sen. Joe Bowen of Owensboro:

“Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

– Justice Louis D. Brandeis (1856-1941)

These words were powerful in the early 20th Century when written by the former Justice of the Supreme Court and are arguably even more meaningful today.

As the primary sponsor of Senate Bill 2 (SB 2) during the 2016 Session, I sought to focus needed “sunlight” into the activities of the Commonwealth’s taxpayer funded state employee pension systems. Unfortunately politics got in the way and my efforts were fruitless. Key decision makers in the House of Representatives succumbed to the relentless opposition from the retirement system’s lobbyists and decided that transparency is not important.

The nearly $40 billion in liabilities of the retirement systems are a ticking time bomb threatening our entire state. Our retirement systems are ranked among the worst funded in the nation. Taxpayers deserve to know how the pension systems operate and legislators should to have the ability to set policy, not simply react to crisis after crisis. It is past time for change. SB 2 would have provided an opportunity for everyone interested in finding a solution to have the information they need to find those solutions.

Even my good faith attempts at compromise produced no results. The consequences of this inaction mean that you, the taxpayer, and state retirees (who are dependent on the systems for their checks) continue to be in the dark regarding how the systems make decisions. Decisions that involve investing billions of dollars.

Senate Bill 2’s key provision was requiring adherence to the state’s “Model Procurement Code” by the retirement systems. Meaning for the first time an open and competitive bidding when hiring investment managers. While establishing this process would have been victory enough, the bill also called for the reporting of management fees, transparency in investment performances, and Senate Confirmation of the Kentucky Retirement Systems’ Executive Director. Senate Bill 2 would have required more financial expertise of appointed board members and provided additional oversight from a watchdog group known as the Government Contract Review Committee.

The House’s failure to enact Senate Bill 2 does not mean the General Assembly took no action to solve Kentucky’s public pension crisis.  The Commonwealth will be making an unprecedented contribution of $1.28 billion above the recommended and required contributions to the pension systems.  A move I have been advocating for some time.  But this additional funding does not remove the need for more transparency.

“The most important political office is that of the private citizen.”

– Justice Brandeis

 

All is not lost. I have lived to fight another day and the retirement systems should remember that the 2017 Session of the General Assembly will be here before they know it.

 

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Note:  Senator Joe Bowen (R-Owensboro) represents the 8th District including Daviess, Hancock, and McLean counties.  He is chairman of the State and Local Government Committee and a member of the Transportation Committee, the Licensing and Occupations Committee, and co-chair of the Public Pension Oversight Board.  For a high-resolution .jpeg of Senator Bowen, please visit http://www.lrc.ky.gov/pubinfo/portraits/senate08.jpg.