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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