The Teachers’ Retirement System of Kentucky had 57.7 percent of the money it’s expected to need to honor its future pension obligations as of June 30, bringing its unfunded liabilities to $14.3 billion, the agency’s trustees were told Tuesday.
The pension system’s funding level is up slightly from the previous year’s level of 56.4 percent.
The pension fund should slowly continue to rise if state leaders follow through on Gov. Matt Bevin and the legislature’s recent commitment to provide “essentially all” of the money recommended for the fund, said Gary Harbin, TRS executive secretary.
“This reflects a good year for the pension plan,” Harbin told members of the TRS Governance and Audit Committee. “This is a great turning point for us, and the legislature and the administration are to be wholeheartedly applauded.”
For more than a decade, the Kentucky legislature paid many hundreds of millions of dollars less than the annual recommended contributions into TRS, creating a massive pension shortfall. Lawmakers say the only solution now is to cut retirement benefits for teachers, although that action is being challenged in the courts.
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More than 125,000 active and retired educators are enrolled in TRS, including people who teach or who have taught at K-12 schools and at the state’s regional universities and community and technical colleges. The universities of Kentucky and Louisville are not in TRS; they provide defined-contribution retirement accounts for their employees rather than traditional pensions.
Since 2013, the number of active teachers enrolled in TRS has dropped from 74,831 to 72,205, while the number of retired teachers has risen from 47,406 to 54,377.
The TRS Governance and Audit Committee heard its annual update Tuesday from actuarial consultants on the health of the system’s pension and insurance funds.
The pension fund saw a 10.5 percent return on investments in fiscal year 2018, well above the assumed 7.5 percent rate of return.
Last week, the Kentucky Retirement Systems Board of Trustees heard its own annual pension funding update for state and local government employees, including the disquieting news that the primary state pension fund has only 12 percent of the money it’s expected to need to pay future benefits. Overall, KRS faces about $23.6 billion in unfunded pension liabilities.
Last winter, in response to Kentucky’s public pension deficit, Gov. Matt Bevin signed into law a bill cutting retirement benefits, most notably by putting an end to traditional pensions for newly hired teachers. Instead, future educators in Kentucky would be provided with less generous hybrid cash-balance plans similar to what state government employees were shifted to several years ago. Retired teachers in Kentucky do not collect Social Security, so their TRS-provided benefits usually represent their entire income in old age.
However, the pension overhaul bill has been challenged as unconstitutional because it was swiftly jammed through the legislative process without the usual public notice as a rewritten piece of legislation that originally dealt with sewage treatment. The Kentucky Supreme Court is expected to rule on it in the near future.