‘Frontline’ documentary investigates Kentucky’s ‘Pension Gamble’ and teacher protests

A new documentary Tuesday will investigate how the state of Kentucky deliberately under-funded its public pension systems and then unsuccessfully made risky bets on “alternative investments,” such as hedge funds, in a desperate attempt to refill its coffers.

“The Pension Gamble,” the latest episode of the investigative series “Frontline,” will air on KET at 10 p.m. Although Kentucky is possibly the nation’s worst-case scenario, the PBS show makes it clear that about half of all states haven’t saved enough money to provide for the retirements of their public employees.

“This is a story about having your retirement, that you thought was secure, go south — and it’s a story that impacts millions of Americans,” correspondent Martin Smith said in a news release.

Smith and producer Marcela Gaviria and Nick Verbitsky made multiple trips to Kentucky earlier this year to interview state leaders, public employees, journalists and watchdogs who have been warning for years that Kentucky needed to take its pension crisis more seriously.

For many people, a public sector job traditionally meant unimpressive wages but a secure retirement thanks to a lifetime pension. In recent years, these workers have panicked as they’ve learned that the state of Kentucky did not put enough aside, even as they were dutifully contributing toward their retirement systems with every paycheck.

“Many of us teachers are working paycheck to paycheck, trying to make ends meet,” school teacher Christina Frederick-Trosper says in the episode. “I have no savings. So, my pension is everything. Without that, I won’t survive.”

As the show explains, state politicians who did not want to raise taxes or cut spending simply ignored the recommended sums they were supposed to contribute for pensions. This was aggravated by unrealistic assumptions, including high rates of payroll growth and investment returns that Kentucky hasn’t seen in years, which meant the pension funds’ true numbers were even worse than advertised.

Kentucky Retirement Systems and the Teachers’ Retirement System of Kentucky have unfunded liabilities in the many tens of billions of dollars, although KRS — and in particular the pension fund for state government employees — is in, by far, the worst position, with only 13 percent of the assets it’s expected to need in coming years.

When Republican Gov. Matt Bevin and the GOP-led General Assembly passed a law this year that made changes to the teachers’ retirement system, such as putting future educators in 401(k)-style defined-contribution accounts, thousands of teachers protested at the state Capitol in Frankfort and at meetings around the state. That law has been challenged before the Kentucky Supreme Court.

Bevin and the legislature have committed to paying down the pensions’ unfunded liability at a faster pace, although that means much less money will be available in coming years for education and other state services.

The Frontline episode also will examine a pending lawsuit in Frankfort, filed by eight public employees, that alleges KRS was cheated on up to $1.5 billion by wealthy hedge fund dealers using expensive and complex investments that the pension system’s board of trustees never understood. The use of hedge funds by public pensions has been controversial for years because of their higher fees, lower returns and traditional lack of transparency.

This story was originally published October 23, 2018 at 10:14 AM.