Legislation is moving forward that would let the Kentucky Teachers Retirement System (KTRS) issue $3.3 billion in bonds to help ease the system’s funding shortfall.
On Tuesday, the bill cleared Kentucky’s House Budget Committee without any opposition.
The bill’s sponsor, House Speaker Greg Stumbo, said a House vote could be coming as soon as next week.
If passed, the plan’s success hinges on KTRS investment returns exceeding the interest on the issued bonds.
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Without a clear plan to ante up more money, lawmakers on the powerful House Budget Committee are backing legislation that would let KTRS issue $3.3 billion in bonds to prop up its investments over the next eight years.
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If approved, KTRS would issue the bonds in fiscal year 2016. Pension officials estimate that they can borrow money at 4.5 percent interest and earn returns of 7.5 percent through investments. The plan also calls on the state to begin gradually increasing contributions in the next budget cycle.
All together, that would cut the state’s annual retirement contribution in half — from more than $800 million each year to about $400 million a year — by 2026.
KTRS says it can cover the costs by reshuffling finances for certain benefits and by reappropriating debt service that’s already in the state budget and slated to retire.
Stumbo says he traditionally opposes pension bonds but argued Tuesday that the state could capitalize on interest rates, which have dropped to 50-year lows. “That makes this window of opportunity that we have so attractive,” he said.
The measure is officially called House Bill 4.