Kentucky Teachers’ Retirement System

Kentucky Pension Bond Bill Rejected, Amended in Senate

The Kentucky Senate has rejected a bill that sought to issue $3.3 billion in bonds to help ease the funding shortfall of the Kentucky Teachers’ Retirement system (KTRS).

The bill passed the House late last month, but was stopped short in the Senate on Monday.

Some lawmakers cited the risk of the bonds as a reason for the bill’s rejection; the success of the plan depended on the system’s investment returns exceeding the interest on the issued bonds.

If that were to happen, KTRS could pocket the difference and funding will improve. But if investment returns lag, the pension-funding situation would worsen further.

Senators amended the bill to call for the creation of a task force to examine the pension system and recommend funding solutions.

More on the new bill, from the State-Journal:

The substitute adopted in the Senate Standing Committee on State and Local Government instead directs the Legislative Research Commission to create a Kentucky Teachers’ Retirement System task force to study and make recommendations for funding and stabilizing the retirement system.

The task force will include:

* Six members of the Senate with four appointed by the Senate president, two appointed by the Senate minority floor leader;

* Six members of the House with four appointed by the House speaker, two appointed by the House minority floor leader;

* The House speaker and Senate president will each appoint one co-chair from their chambers;

* The task force will have monthly meetings during the interim and report its findings to the LRC for referral to a committee by Dec. 18, 2015.

The bill is officially called House Bill 4.

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Kentucky Pension Bond Proposal Clears House

A bill aimed at easing Kentucky’s pension shortfall passed the House on Monday, less than two weeks after the bill came out of committee.

The bill would allow the issuance of $3.3 billion in bonds to help ease the funding shortfall of the Kentucky Teachers’ Retirement system (KTRS).

The proposal comes with risk: the success of the plan depends on the system’s investment returns exceeding the interest on the issued bonds.

If that happens, KTRS can pocket the difference and funding will improve. But if investment returns lag, KTRS could end up losing money.

Kentucky Teachers’ Pension Bond Proposal Clears House Committee; Vote Could Come Next Week

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.

Top Kentucky Lawmaker Introduces Teacher Pension Funding Bill; Seeks $3 Billion in Bonds

Kentucky House Speaker Greg Stumbo has taken up the Teachers Retirement System on one of their funding proposals.

Stumbo on Friday filed a bill calling for the issuing of $3.3 billion in bonds that will be used to fund the teachers system.

More details from the Courier-Journal:

Stumbo, D-Prestonsburg, said Friday that the retirement system could capitalize on current low interest rates of around 5 percent and use the bonds to supplement the state’s pension contribution for the next eight years.

“This window is going to close pretty soon,” Stumbo said. “I think the feds, this year, will allow those rates to rise some because the economy is getting better and because the banks aren’t making any money on deposits.”

KTRS estimates that a $3.3 billion bond issue would save the state around half a billion dollars annually by 2026. But the plan only works if investments yield a higher rate of return than the interest on the bonds.

Supporters compare the idea to refinancing a home mortgage at a lower rate. But skeptics view it more like using credit cards to pay off debt, and the measure would need support from a supermajority of lawmakers to pass in an odd year of the legislature.

But lawmakers haven’t forgotten about the transparency issues present at both state pension systems. Lawmakers may still attach strings to the funding that forces the teachers system to make some changes to their opacity. From the Courier-Journal:

Stumbo said he is comfortable allowing bonds for teacher pensions because KTRS appears prudent in its investment strategy. But he said lawmakers might consider additional measures to improve oversight of the system as part of the debate.

Stumbo added that lawmakers are not interested in providing bonds to Kentucky Retirement Systems — the pension system for state and local workers — because of lingering questions over investments and transparency.

The Kentucky Teachers Retirement System is one of the worst funded educator’s pension funds in the U.S.

Likewise, the Kentucky Employees Retirement System is one of the worst funded plans in the country.

Kentucky Lawmakers to Push for Pension Reforms Before Funding Teachers’ System

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.

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.

[…]

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.

“You’ll Hear A Lot About Pensions” in 2015, Says Kentucky Chamber of Commerce President Amidst Push for Transparency

Early this month, the Kentucky Chamber of Commerce called for an audit of the Kentucky Retirement Systems – specifically, a review of its investment performance and policies.

Now, the Chamber president and CEO is promising Kentucky residents that they’ll “hear a lot about pensions” in 2015 — the implication being that addressing the state’s pension issues will be on the top of the docket for the Chamber next year.

Chamber President and CEO David Adkisson sat down with the Lexington Herald Leader over the weekend, and this is what he had to say:

The big storm cloud hanging over Frankfort right now in terms of its impact on the budget and everything else the state of Kentucky wants to do, like operating our schools, is the pension issue. There are two basic pension systems; the Kentucky Retirement System and then the Kentucky Teachers Retirement System.

The Teachers Retirement System has been saying for a couple of years that they need more money from the legislature to get on sound footing. They’ve addressed some of their key issues and they’re not in as bad a shape as the Kentucky Retirement System. But, they need more money and a significant amount: they said 400 million. That’s huge.

On a $10 billion budget, that’s a 4 percent increase.

We’re very interested in seeing more transparency. We want to know more about the fees that are paid to placement agents, we want to know more about the administrative and health-care costs of the Kentucky Retirement System. So, you’ll hear a lot about pensions in the 2015 session.

State Auditor Adam Edelen hasn’t decided whether to heed the Chamber’s call for an audit.

State Funds For Kentucky Pension Systems Could Come With Strings Attached As Lawmakers Push For Pension Transparency

The Kentucky Teachers’ Retirement System (KTRS) and the Kentucky Employees Retirement System Non-Hazardous Plan (KERS Non-Haz) could both be in line for state money sooner than later.

But there might be some strings to that state funding, as lawmakers push for more transparency around investments and placement agents associated with the pension systems.

One lawmaker wants the pension systems to make the search for investment firms more competitive – and more public. From the Lexington Herald-Leader:

Rep. Jim Wayne, D-Louisville, wants the pension systems to use the state’s competitive bidding process to solicit investment proposals, rather than award the lucrative deals privately. Terms of each deal, including the management fees, would be made public. Wayne also would ban payments to third-party “placement agents,” middlemen who help private investment firms sell their products to pension funds.

“The status quo works for the special interests on Wall Street because it hides what they’re making off our pension system,” Wayne said.

Another lawmaker wants to know the fees paid to placement agents, as well as the pension benefits received by state lawmakers:

Sen. Chris McDaniel, R-Taylor Mill, wants full disclosure of placement agent fees. He also wants the public to see how much money individual members of the General Assembly expect to collect through pensions or how much they do collect if they are retired. Kentucky’s part-time lawmakers not only have awarded themselves state pensions, but they also carefully keep them in a separate system, apart from KRS, that is 62 percent funded.

Last winter, several bills along these lines were ignored by House and Senate leaders, including one that would have required public disclosure of all state retirees’ pensions. This time, McDaniel said, he has narrowed the focus to his fellow lawmakers.

“I’ve told people, 95 percent of state workers don’t receive a very big pension when they retire. But there are a handful of pension abuses, and it would be useful for us to understand how it works. So at the very least, the legislature can lead from the front and require transparency for its own pensions,” McDaniel said.

Not everyone in Kentucky politics agrees with the transparency initiatives. In fact, one powerful lawmaker says he won’t consider either of the aforementioned ideas:

House State Government Committee Chairman Brent Yonts, D-Greenville, said he’s not inclined to consider Wayne’s or McDaniel’s bills this winter.

“I’m reluctant to support a can-opener approach to the pension system without knowing the consequences of that and without knowing why it’s currently done this way,” Yonts said.

Outside investment managers might not want to accept KRS’ and KTRS’ money if they know their fees will be publicly disclosed, Yonts said. And nobody who gets a state pension should have to share that information with the public, he said.

“Frankly, I don’t think that’s the public’s business,” Yonts said. “They have access to the public payroll and salary information. They can theorize about what we’re going to collect in pensions. But the public is not entitled to know every last little thing about us.”

Both of the state’s major pension plans are dangerously underfunded, but the KERS Non-Haz plan is among the unhealthiest in the country, with a funding ratio of 21 percent. KTRS is 52 percent funded.

Kentucky Teachers Pension Presents Bond Proposals To Lawmakers

We learned on Wednesday that the Kentucky Teachers’ Retirement System (KTRS), one of the most under-funded education retirement funds in the country, was seeking funding help from the state legislature.

Now, many more details have emerged about the proposals the System has presented to lawmakers. KTRS presented lawmakers with two options. The Courier Journal has the details:

KTRS suggested Wednesday that lawmakers consider two borrowing scenarios in the 2015 legislative session, and supporters say the proposals could reduce taxpayer cost in the long run while helping the system cope with $13.8 billion in unfunded liabilities.

One option involves a $1.9 billion bond to help fully fund the retirement system for the next four years and eventually decrease annual pension costs about $500 million by fiscal year 2026.

A second option includes a $3.3 billion bond that could fully fund the system for eight years and reduce annual costs in 2026 by around $445 million.

Both plans are based on 30-year bonds with interest rates in the range of 4 percent, and either option could be funded by re-purposing debt service and revenue streams that already exist in the state budget, according to KTRS.

Beau Barnes, KTRS general counsel and deputy executive secretary of operations, said the system is not “wild about bonding.” But he argued that liabilities are growing at 7.5 percent a year and compared the proposal to refinancing a home at a lower interest rate.

“We were asked what we could do for the pension fund without requiring additional dollars out of current budgets, and these were the only things we could think of,” Barnes said. “We didn’t really see any other alternative.”

KTRS has at least one lawmaker on their side. House Speaker Greg Stumbo voiced his support for the plan, according to MyCn2 News:

“I think we need to listen very carefully to it and work with them to try to craft some form of a proposal, which hopefully we can get enough support to pass in both chambers because these market rates won’t be favorable much longer in my judgement,” Stumbo, D-Prestonsburg, said in the committee meeting, noting the Federal Reserve will likely get pressure from banks to raise interest rates as the economy improves.

“… What they’re saying is we can’t tarry. If we wait too long, we’ll lose this window of opportunity.”

KTRS manages $18.5 billion in assets.

Kentucky Teachers’ Pension Asks Lawmakers For Funding Help; Will Present Bond Proposal

The Kentucky Teachers’ Retirement System is seeking help from the state legislature in easing its pension obligations. The plan involves the state issuing bonds.

Details on the proposal are sparse, but KTRS officials will present their plan to lawmakers on Wednesday.

From the Courier Journal:

The Kentucky Teachers’ Retirement System is proposing that the state issue a new bond to help shore up underfunded teacher pensions.

Officials from KTRS will present the proposal to lawmakers on the Interim Joint Committee on State Government on Wednesday afternoon. An official said last week that the plan will center on using existing revenue streams that will soon become available once the state retires debt service on older bonds.

According to the 2013 valuation, KTRS faces more than $13.8 billion in unfunded liabilities and has only 52 percent of the money it needs to pay out pension benefits in coming decades.

The system has asked the state to provide around $400 million in additional funding each year to keep the system solvent.

The plan could well be for the state to issue “pension obligation bonds”. Governing magazine explains the concept of POB’s:

Pension Obligation Bonds (commonly referred to as POBs), allow governments to issue taxable bonds for the purposes of putting money toward or fully paying off the unfunded portion of a pension liability. The proceeds from the bond issue go in the pension fund. The theory is that the rate of return on the investment will be greater than the interest rate the government pays to bond investors so that the transaction is favorable to the government; it makes money off the deal.

KTRS manages $17.5 billion in assets. The system is about 51 percent funded.