A bill that could save Kentucky's state government pension fund millions of dollars passed unanimously out of a House committee Thursday and deserves quick and favorable action by the full House and the Senate.
The measure, House Bill 480, would prohibit any state government pension fund from paying middlemen known as "placement agents."
These agents, who perform services of poorly defined value, have collected nearly $15 million in fees from the Kentucky Retirement Systems since 2004, according to an internal review.
These huge fees came as a surprise to several members of the KRS board, a fact that in itself raises a whole host of questions about the transparency and oversight of KRS operations.
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The money saved by eliminating placement agents would be only a small portion of the $16 billion shortfall the system faces as a result of under-funding by the legislature. But it is money that could — and should — be invested for the benefit of the retirees who were promised a solvent retirement fund during their years of government service.
There is no indication of any wrongdoing beyond the huge fees in Kentucky's dealings with placement agents.
However, scandals in other states involving kickbacks have drawn the attention of the Securities and Exchange Commission, which opened an inquiry into the KRS in September. According to Forbes magazine, the SEC at one point proposed a ban on placement agents.
At the request of the KRS board, Kentucky Auditor Crit Luallen is also examining the system's operations.
One troubling amendment suggested by the bill's sponsor, Rep. Mike Cherry, D-Princeton, removes a requirement that the state auditor review KRS every five years.
Cherry explained he took out this provision and another imposing term limits on the boards that oversee the KRS, the Kentucky Teachers Retirement System and the Judicial Form Retirement System because he wanted to see Luallen's recommendations first.
We'll pass on the issue of term limits for the moment but we can't see any downside to having periodic reviews by the auditor's office. The system has been plagued by both bad investment and rumors of mismanagement in recent years.
A regular vetting would both reassure the public and discourage any internal backsliding.