Saying he wants to address the state’s $35 billion public pension shortfall, Gov. Matt Bevin on Friday abolished the Kentucky Retirement Systems Board of Trustees by executive order and replaced it with a new board that will have four additional members appointed by him.
“The reorganization will provide a more focused, expert vision and purpose, designed to carry out the objectives honoring the expectations of current retirees and employees,” the governor’s office said in a prepared statement.
The KRS board oversees $16 billion in assets for the retirement benefits of about 350,000 people employed by state or local governments or the Kentucky State Police. It faces billions of dollars in unfunded liabilities, due largely to the failure of state government to contribute recommended sums over most of the last two decades. At Bevin’s urging, an audit of the state pension system is set to begin in coming months.
A state retiree watchdog group immediately blasted Bevin’s order on Friday. It called for the previous trustees to sue the governor.
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“The governor has granted himself extraordinary new powers over a board that is supposed to be insulated from political interference,” said Jim Carroll of Kentucky Government Retirees. “Moreover, his actions further marginalize the elected representation of Kentucky Retirement Systems members by stacking the KRS board of trustees with more appointees. We urge the legitimate KRS board to litigate this matter. We as stakeholders deserve nothing less.”
Bevin’s communications director, Jessica Ditto, said Carroll “should be applauding the efforts to bring more transparency and financial management” to the board.
“He should be grateful for these well-respected and highly qualified investment experts who have stepped up to help solve this problem,” Ditto said.
Caught off-guard by the news, board members late Friday said they were studying Bevin’s executive order to understand what it meant.
Joseph Hardesty, an appointee of former Gov. Steve Beshear, said he believes he’s still on the new board because he was recommended by the Kentucky School Boards Association. Bevin seems to be retaining the gubernatorial appointees recommended by specified outside groups, such as the school board association, the Kentucky League of Cities and the Kentucky Association of Counties, Hardesty said.
On the other hand, former board chairman Thomas K. Elliott, whom Bevin wanted gone, appears to have been removed, Hardesty said. Bevin ordered Elliott off the board in April and sent state police to last month’s board meeting to threaten Elliott with arrest if he tried to participate in KRS business with other trustees.
“I honestly can’t tell you for sure, as I’m sitting here this evening, who’s on and who’s off now,” said Hardesty, a Louisville lawyer. “I have serious questions as to whether he (Bevin) has the legal authority to do this. There was a statute passed by the legislature creating the board of trustees, and it’s very specific as to who is qualified, how they are selected and how long they serve. I’m not sure he can just undo all of that on his own.”
The next scheduled meeting of the full board is Sept. 8. Among its other business, it must find a replacement for William Thielen, who is retiring as KRS executive director.
Bevin’s order replaces the 13-member board with a larger 17-member board. Eleven trustees will be appointed by the governor, including four newly created positions Bevin filled Friday with William S. Cook of Louisville, who retired from investment firm KKR Prisma in 2015; David L. Harris, of Nicholasville, a senior partner and shareholder of financial services firm MCF Advisors LLC; Neil P. Ramsey of Louisville, who founded Ramsey Financial Inc.; and state budget director John E. Chilton of Louisville, a certified public accountant.
The six trustees who are independently elected by public employees and retirees will remain on the board, according to Bevin’s order.
In a statement, Attorney General Andy Beshear questioned Bevin’s “unprecedented actions” Friday, citing the governor’s decisions to remake both the KRS and University of Louisville governing boards.
“Lawmakers mandated that these boards be independent,” said Beshear, who previously has said that Bevin lacked the authority to strike Elliott off the KRS board in the middle of his appointed term. “My office is therefore closely reviewing today’s actions.”
Apart from changing the membership of its governing board, Bevin’s order also sets new transparency rules for KRS long sought by some legislators. In 90 days, all KRS employees will become part of the state personnel system, which means their salaries will be determined by the personnel secretary. Lawmakers sharply criticized the KRS board last year for awarding a 25 percent pay raise to Thielen, taking his salary to $215,000 a year.
Also, KRS will be required to publish on its website all of its individual investment holdings and the fees and commissions paid on each, with quarterly updates. KRS already releases the total sums that it pays in investment fees and commissions per asset class, but it has carefully guarded the individual payments to each fund manager, saying that public disclosure with interfere with its ability to negotiate competitive terms.
Senate State and Local Government Chairman Joe Bowen, R-Owensboro, quickly applauded Bevin’s order.
“I have called for the KRS board to operate in a more open and transparent manner and I have also pointed out the need for investment professionals on the KRS board,” Bowen said. “After today, both of those goals are accomplished. I hope that public employees participating in the pension system and the taxpayers funding those pensions will find comfort in Governor Bevin’s executive order.”