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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.

Top Kentucky Lawmaker Close to Filing Bill For Additional Teacher Pension Funding

Kentucky House Speaker Greg Stumbo says he is planning on filing a bill by the end of the week that would give additional funding to the state’s Teacher Retirement System.

The funding would come through bond sales and could lead to an infusion of nearly $1 billion into the teachers’ system.

Not all lawmakers are on board with the idea of issuing bonds to pay down pension debt. But Stumbo says the time is now.

From the Courier-Journal:

Stumbo, D-Prestonsburg, said authorizing bonds would allow the system to capitalize on historically low borrowing rates and refinance its pension debt. He compared it to refinancing a home mortgage.

“I don’t generally favor bonding these pension obligations, but since the market is so favorable, it would be irresponsible for us not to at least consider what they proposed,” he said.

Stumbo said Thursday that the bill remains under review by pension officials but that he expects to file legislation within the next day.

KTRS has proposed two options 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 and eventually decrease annual pension costs by about $500 million by fiscal year 2026.

A second option for $3.3 billion in bonds could fully fund the system for eight years and save around $445 million annually by 2026.

The Kentucky Teacher Retirement System has $14 billion in unfunded liabilities.

Kentucky Teachers’ Pension Continues to Shield Investment Information From Public View

Pension360 covered last month the Kentucky teacher, Randy Wieck, who is suing the Kentucky Teachers’ Retirement System (KTRS) claiming the fund has “failed in their fiduciary duty” by letting the system become one of the worst funded teachers’ plans in the country.

Another component of his lawsuit deals with the lack of transparency surrounding the fund’s investments, a complaint of many stakeholders. Last week, KTRS stoked the flames of that complaint by denying Wieck access to contracts with investment firms.

Reported by the Kentucky Center for Investigative Reporting:

Randolph Wieck, a history teacher at DuPont Manual High School, sent an open records request Oct. 28 to the Kentucky Teachers’ Retirement System, which covers more than 140,000 school system workers statewide. Wieck asked for details of the contracts with some of the investment firms that manage part of KTRS’ $18 billion-plus in assets.

Wieck, who recently filed a lawsuit against the teachers’ pension system, wants to know what his retirement money is being invested in—and how much in fees KTRS is paying to big private equity firms. Among the funds he asked for details on were the Carlyle Global Financial Services Partners II fund and the Blackstone Partners VII L.P. fund.

KTRS denied his request in a Nov. 26 letter. Because KTRS agreed with the investment firms to keep contract details secret, it told Wieck that state law forbade it from disclosing them.

“Disclosure of these trade secrets would permit an unfair commercial advantage to their competitors,” wrote KTRS General Counsel Robert Barnes.

KTRS manages $17.5 billion in assets. The system was 51 percent funded in 2013 — but that ratio could drop to as low as 40 percent once the system begins measuring liabilities according to new GASB standards.

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.

Teacher Sues Kentucky Pension System Over Funding Status, Transparency Issues

A Kentucky teacher has filed a lawsuit against the Kentucky Teachers’ Retirement System (KTRS), claiming KTRS has “failed in their fiduciary duty” by letting the system become one of the worst funded teachers’ plans in the country.

From WFPL:

A Jefferson County Public Schools teacher filed a lawsuit Monday against the Kentucky Teachers’ Retirement System, which has been called one of the worst-funded pension systems for educators in the U.S.

The plaintiff, duPont Manual High School teacher Randolph “Randy” Wieck, told WFPL that the system supporting over 140,000 teachers in Kentucky is billions of dollars in debt; also that teachers pay about 12 percent of their paychecks into the retirement system.

“We have raced to the bottom and we’re neck and neck with the worst funded teachers plan in the country,” he said.

As WFPL reported, the General Assembly during this year’s legislative session funded KTRS at around 50 percent of what the retirement system requested.

The federal Government Accounting Office and Standard & Poor say Kentucky’s pension system is being funded at an unhealthy rate.

KTRS has “failed in their fiduciary duty by not aggressively and publicly demanding the full funding they need to stay solvent,” Wieck argues in a copy of the complaint he provided to WFPL. The complaint further alleges that KTRS has not been transparent enough in the “system’s dire funding status,” and that the investments made by KTRS are not responsible.

The teacher, Randy Wieck, is giving KTRS one year to become fully funded. After that, he says he will bring the lawsuit to the steps of Kentucky’s General Assembly; for many years, lawmakers have failed to pay the state’s actuarially-required contribution to the pension system – although they did make the full payment to the teachers’ system in 2011.

TRS’ attorney commented on the suit:

“I am very optimistic that we are going to find a solution for this,” said Beau Barnes, general counsel for KTRS.

There are positive signs among members of the General Assembly to come up with a plan, he said, adding that next week, KTRS will appear before the state’s Interim Joint Committee on State Government to discuss a financing plan for the pension fund. Wieck, who was joined by “Kentucky Fried Pensions” author Chris Tobe, seemed skeptical of previous conversations that seemed to excite Barnes.

The state legislature is not poised to discuss budget issues during the 2015 legislative session, but Wieck said Kentucky is violating its duty to keep the pension system solvent.

“You don’t actually have to wait for the bus to hit you to experience danger. And that is what is happening to Kentucky Teachers’ Retirement System. It is being damaged every year,” he said.

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