Kentucky Lawmakers Are Willing to Boost Funding of Teachers’ Retirement System — But There Are Strings Attached


The Kentucky General Assembly is considering issuing billions of dollars worth of bonds to help fund the state’s Teachers’ Retirement System (KTRS).

But the funding may come with a catch as many lawmakers want to attach strings to the funds, which range anywhere from forcing new transparency requirements on the system to making benefit changes.

There are currently two proposals under consideration for improving the funding of KTRS. The Courier-Journal explains the bills:

KTRS has brought forth two proposals for lawmakers to consider in the 2015 legislative session.

One involves a $1.9 billion bond issue to help fully fund teacher pensions for the next four years. It would eventually decrease annual pension costs by about $500 million by fiscal year 2026.


A second option involves a $3.3 billion bond that could fully fund the system for eight years and save around $445 million annually by 2026.

Beau Barnes, KTRS general counsel and deputy executive secretary of operations, says either proposal could be funded by repurposing debt service and revenue streams that are already in the state budget.

Both proposals would lead to significant funding improvement for KTRS, which is currently only 54 percent funded.

Many lawmakers are willing to seriously consider both proposals. But those same lawmakers say the extra funding won’t come without strings attached. From the Courier-Journal:

So far, legislators have pre-filed at least four bills that would alter some aspect of teacher pensions, and leaders from both the House and Senate say any bonding needs to be paired with reforms.

“There is not a lot of enthusiasm for borrowing more money to pay off the KTRS debt without structural changes accompanying that effort,” said Senate Majority Leader Damon Thayer, R-Georgetown.

Thayer said lawmakers need to consider adjustments to employee contributions and cost-of-living increases, along with new policies that promote transparency in the system.

House Speaker Greg Stumbo, who argues that bond proposals have merit under today’s market conditions, likewise favors measures to improve oversight and transparency as part of the overall funding scheme.

“I think to sell it, it needs to be part of the package,” Stumbo, D-Prestonsburg, said.

Some bills would push KTRS to increase transparency surrounding its investments. Other bills would change benefits outright, although those have less support. The specifics of two of the bills:

McDaniel, R-Latonia, is sponsoring a bill that would require public retirement systems — including KTRS — to disclose more information about use of investment middlemen known as placement agents.

In the House, Rep. Jim Wayne, D-Louisville, has pre-filed legislation that would, among other things, ban the use of placement agents and require KTRS to publicly disclose information about investments and contracts.

Wayne said the bonding proposal makes some fiscal sense if the state can borrow money at a interest rate lower than its investment return.

But he warned that lawmakers can’t trust the system to act in the best interest of retirees without more transparency, and he says the funding problem is better addressed through tax reform.

KTRS manages $17.5 billion in assets and has $14 billion in unfunded liabilities.

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