In State With 79% Pension Hole, Lawmakers Are Doing FineDarrell Preston and Margaret Newkirk
Kentucky’s retired state workers’ pension fund is a mess. It’s the most underfunded of any in the country, and it’s sinking dangerously close to running out of money.
Yet state lawmakers, the men and women responsible for budgeting those pensions, don’t have quite the same worry about their own money.
While Kentucky Legislators’ Retirement Plan doesn’t have enough money to cover 100 percent of present and future payouts -- few pension plans in the country do -- it has 62 percent, eclipsing the 21 percent of the $2.3 billion Kentucky Employees Retirement System, according to state records. Assets in the workers’ plan could shrink even more, pension officials said.
“There’s a lot of frustration over the funding of the two systems, because the legislators are doing fine,” said Jim Carroll, co-founder of Kentucky Government Retirees, a group of 5,465 former state workers urging lawmakers to undo a decade of short-changing. “We could run out of money, and if we do, there are going to be pitchforks and torches on the Capitol lawn.”
Kentucky, whose legislators are in session 90 days every two years, is one of 41 states that provide lawmakers with pensions. While many have reduced or limited the benefit, and others such as California have taken it away for new lawmakers, about a half-dozen, including Kentucky, Georgia, Michigan and Mississippi, have better-funded plans than their state workers.
“They shouldn’t even have a taxpayer-funded pension for what’s constitutionally a part-time job,” said Jim Walters, president of the Bluegrass Institute for Public Policy Solutions, which advocates for free markets in Lexington, Kentucky.
Lawmakers continue to fund their own plans at a time when the companies that rate municipal debt are taking a hard look at the pressures of pension costs. Standard & Poor’s cut the rating on economic development road bonds on June 14, citing in part lawmakers’ failure to “make meaningful progress” in addressing its pension liability.
“We believe Kentucky’s the next state poised for a downgrade,” said Paul Nolan, head of municipal research at Asset Preservation Advisors in Atlanta, which manages about $2 billion.
Kentucky debt has earned about 0.5 percent this year, compared with a flat return for the entire municipal market, Barclays Plc data show. The state gets strong credit ratings from both Moody’s Investors Service, which graded it Aa2, the third-highest score, and Standard & Poor’s, which ranked it one step lower at AA-.
Kentucky’s lawmakers fully funded a retirement plan for themselves in all but four of the last 35 years. The public-worker pension plan got a fraction of its required contribution from the state in 15 of the past 22 years.
Donna Early, executive director of the retirement system for legislators and judges, declined to comment.
Arnold Simpson, a Democratic representative from Kenton County, just south of Cincinnati, said it was unfair to compare the $46.7 million lawmakers’ pension fund with the larger public-employees plan.
“There are so few members in it that it’s very easy to fund it properly,” he said.
Simpson said many lawmakers, himself included, were unaware when they ran for office that legislators earned pensions. He supports equal pension treatment for legislators and state workers and sponsored a new law this year that would put the legislators’ retirement fund under the oversight of the state pension board, which supervises the employee plan.
“What’s good for the goose is good for the gander,” Simpson said.
Under pension changes that were passed in 2013, the state began providing its required contribution to the workers’ fund in fiscal 2015, but projections show it won’t catch up for 30 years.
David Peden, the retirement system’s chief investment officer, said in an e-mail that he told workers there’s an “absolute worst-case” scenario in which the portfolio could “drop in value to the point that we exhaust the remaining assets to pay annual benefits.”
The political process to fix the pension system could result in delayed payments, Peden said.
In the fiscal year ended June 30, 2014, the pension plan paid out about $914 million of benefits and expenses, or $182 million more than it received from investments and contributions from workers and the state.
“The next market downturn could do us in,” said Carroll of the retired state-workers group.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- Uber Halts Autonomous Car Tests After Fatal Crash in Arizona
- Apple Is Secretly Developing Its Own Screens for the First Time
- Stocks Slump as Facebook Hits Tech; Bonds Recover: Markets Wrap
- From a $126 Million Bonus to Jail: The Fall of a Star Trader
- How Facebook Made Its Cambridge Analytica Data Crisis Even Worse