by RONNIE ELLIS, CNHI News Service –
FRANKFORT – Kentucky’s troubled pension systems had some good news for lawmakers Monday, although they remain a long way from financial stability.
And one of them — the County Employee Retirement System or CERS — wants to become independent of the state system and enjoys the support of a key Republican senator.
Representatives of the retirement systems told the Public Pension Oversight Board on Monday that their financial position has improved slightly over the past year because of an infusion of cash from the state budget and improving market conditions.
The Kentucky Teachers’ Retirement System, for instance, uses a state appropriation of $973 million over two years — $125 million each quarter – to improve its cash flow and to increase its asset base from $16.8 billion to $18.1 billion in a year.
It’s cut its negative cash flow — having to pay out more in benefits than it took in — from around $611 million to about $300 million.
KTRS Deputy Executive Director Beau Barnes said the timing of the state infusion of cash – proposed by Gov. Matt Bevin and approved by lawmakers in 2016 – couldn’t have come at a more opportune time.
“The timing is great,” Barnes told the board. “Just as markets began to rebound, the funding has put KTRS on a path to becoming healthy and well-funded again.”
The estimated combined unfunded liability of all the pension systems is somewhere around $35 billion — but Bevin and others believe that is too low of an estimate. It’s generally rated the worst-funded state pension system in the country.
Bevin has plans to call a special session of the General Assembly sometime this year, probably in the fall, to deal with tax reform and changes to the pension system.
The most financially strapped is the Kentucky Employee Retirement System or KERS, which has unfunded liabilities of at least $18 billion. But things got just a little better over the past year even for KERS.
David Eager, Interim Executive Director for KERS, told the board the system actually took in about $51 million more than it paid out last year — “but that’s nowhere close to what we need,” he added. KERS’ assets also grew over the last year – from $15.1 billion to $16.2 billion.
According to legislative staff, all the pension systems enjoyed improved returns during the past nine months and are on track to meet their projected assumed returns for the year.
The improvement, however, isn’t enough to ensure financial stability, especially for the KERS plan.
That’s why CERS — which covers city and county employees, firefighters and classified (non-teaching certified) school employees — is asking to leave KERS.
Sen. Joe Bowen, R-Owensboro, sponsored legislation during this year’s General Assembly that would’ve permitted the split, but Bevin asked the bill be held pending an audit of the pension systems and Bowen agreed.
Bryanna Carroll of the Kentucky League of Cities told the board that local governments must by statute fund the entire actuarially required contribution to the system each year and it is 61.5 percent funded versus only 24 percent for KERS.
Local officials want to spin off CERS under a nine-member board made up of appointees of member groups (cities, counties, school boards) and a financial expert and management expert.
Bowen said he supports spinning CERS off from KERS so lawmakers can focus on shoring up the KERS system “where the real problem is.”
He said he didn’t know if the governor – who alone can set the agenda for a special session – will include the question of CERS’ independence on the special session call – but Bowen would like it to be included.