House update: Teacher’s retirement funding not as bleak as media suggest

By DAVID FLOYD
50th State Representative

Wednesday, Feb. 12, 2014, 3 p.m. — I can’t tell you how good it was to have Sen. Jimmy Higdon at Rooster Run last week. It can be difficult to spend much time with individuals at these events, especially when you’re having a heart-to-heart with someone who needs to unload. With both of us there it goes better; even at that some waited patiently, made a quick comment, and took off for home. We still needed three hours to get ‘er done at Rooster Run.

On Saturday, Feb. 15, 2014, we’ll do “Coffee with Dave” at the 150 Quick Stop out at Botland. Jimmy plans to be with us again, and we hope to see you there starting at 9 a.m.

Most people in America pay social security taxes and use it as a pension when they retire in their 60’s. But Kentucky teachers don’t have that option, relying instead on the Kentucky Teachers Retirement System (KTRS) for their monthly pension check. Granted, they can start drawing at an early age, plus they get health insurance in retirement. One teacher told me it’s best to work in Kentucky for the pension, and in other states for the pay. I hope that you understand why teachers are vitally interested in the health of the KTRS fund.

So when the KTRS sends out a warning about the poor health of the KTRS fund telling retirees that it is underfunded by billions of dollars, retirees are understandably agitated and quick to comply with the accompanying request to contact their legislators and tell them to “fully fund the KTRS.” But you know what your Mom told you about pointing fingers – “when you’re pointing at someone, remember that three fingers are pointing back at you.” That’s a perfect moral lesson for the folks at KTRS. Here’s why.

Executive Summary: The KTRS says the fund is short by $15 billion. Investment returns by the KTRS have been awful. The governor’s request across the last 12 years has been short by a total of $35 million, a small percent of the total problem. The legislature has always provided what the governor has asked. We’ll do that again this year, plus fix that $35 million shortfall over the next several years. You’ll keep getting your checks.

Now the numbers, and thanks to Rep Brad Montell, who did the research. In 2001, the KTRS pension was funded at a 96% level. Employee contributions were at $209 million and state (from the general fund) contributions were at $280 million. By 2013, when employee contributions were $305 million and state contributions $343 million, the pension fund’s health had dropped to 52%. Why?

Two big reasons: the folks at KTRS who invest the money achieved less than anticipated returns; and the federal government mandated changes in the calculation methods, which doesn’t change the balance of actual money, it just looks at it from a different angle and Lord knows why they did that. There were a few other factors, but all of these were/are beyond the control of your General Assembly. Here’s the truth: Just as teachers have always paid their match as required by law, the legislature has done so as well.

During each budget cycle, the governor’s staff provides an estimate as to what the projected funding levels should be, and every year your General Assembly has complied.

Some years, the estimate provided by the governor proved to be short. That cumulative figure across the years (how much we are short) is around $35 million. So when KTRS claims we’ve underfunded, $35 million is the largest amount they could possibly claim from us and it was because the estimates were short, not because anybody was doing something on the sly.

In a recent Courier-Journal editorial, the legislature was condemned for underfunding but the case they made was -– let’s be polite here -– overstated. The most galling were comments from Gary Harbin, executive secretary of the KTRS, who said, “It’s horrible what they’re doing to teachers, it really is.” Mr. Harbin, there are three fingers pointing back at you.

This year, Governor Beshear’s proposed biennial budget for teachers again provides the statutorily required match for the teacher’s pension fund — $372 million in the first year and $380 million in the second year. Additionally, the governor’s budget includes $326 million in year one and $299 million in year two for health insurance funding, pre-funded COLA’s, debt service, and sick leave enhancement. Finally, the governor’s budget also provides money in each year of the biennium that will “catch up” that $35 million that we are short.

None of this will remedy KTRS’ poor investment performance. Additional oversight could help in the future, and we are working on that. Meantime retired teachers should be able to sleep comfortably, knowing that next pension check will be deposited on time.

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