Funds Needed for Pensions

The headlines related to Kentucky's financial picture has been rosy as of late, with the Consensus Forecasting Group predicting increased revenues in the current and upcoming fiscal years. However, given the poor financial health of the state's pension system the horizon remains cloudy. See the release below from today's Public Pension Oversight Board hearing.

DSM

For Immediate Release

August 24, 2015

Over $520 million in state funds needed to beef up KTRS

FRANKFORT—The Kentucky Teachers Retirement System pension fund will need an additional $520.4 million in state contributions to be fully funded next fiscal year, a state pension oversight board heard today.

The $520.4 million is in addition to around $380 million paid out to KTRS from the state General Fund this fiscal year, state Deputy Budget Director John Hicks told the Public Pension Oversight Board. All funds are needed to help KTRS meet 100 percent of its ARC, or annual required contribution.

The $520.4 million would be part of the KTRS "employer contribution," which Hicks said is "a great big old hunk of General Fund" tied to the state SEEK (Support Education Excellence in Kentucky) appropriation for local school districts.

For the Kentucky Employee Retirement System, State Budget Director Jane Driskell said an additional $60 million in General Fund dollars will likely be needed in fiscal year 2017 to help meet the required ARC for that system. Around $106 million in additional General Fund dollars are budgeted this fiscal year to meet that pension system's needs. 

Full funding of the Kentucky Employee Retirement System ARC is required under 2013 Senate Bill 2, which mandates that the Kentucky General Assembly "shall pay the full actuarially required contribution rate" for KERS as well as CERS (County Employees Retirement System) and SPRS (State Police Retirement System) beginning in fiscal year 2015.

The pension needs will be addressed by lawmakers in the upcoming budget session beginning in January, although solutions are not expected to come easy.

"Hard to know where to start," said Board Co-Chair Sen. Joe Bowen, R-Owensboro, after Driskell and Hicks finished their presentations. He asked the two if paying the $520.4 million will make the state "flush" on its employer contributions to the KTRS pension system after at least eight years of trying to play catch-up.

"Yes," said Hicks," that's the equivalent of 100 percent full ARC."

Total General Fund dollars budgeted for the KERS and KTRS this fiscal year was around $990 million, or 68 percent of the total $1.5 billion budgeted for the systems, said Driskell.

Board Co-Chair Rep. Brent Yonts, D-Greenville, asked Driskell's office to explain data in a handout it provided which shows KTRS is $487 million short this fiscal year. Hicks said the $487 million added to the $725.9 million budgeted by the state for the current fiscal year represents the full required employer contribution, partially unpaid.

"So we didn't pay the full ARC to teachers last time and, to be current next time, we're going to have to put up $520 million on top of whatever the number is for 2017," Yonts clarified.

Rep. Brian Linder, R-Dry Ridge, said based on prior testimony before the Board, KTRS had not requested any money above the state contribution plus payroll from the General Assembly up until 2008. He said the additional millions needed now are due to performance on investments "that the General Assembly is being asked to make up," asking Driskell's team if he is correct.

Hicks said it is a "shortfall from everything that goes into the performance of the system."

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