Kentucky’s state pension plan is only 18 percent funded. How could that be good news?
Kentucky’s long-ailing state pension fund got a boost this year from the sizzling stock market and a record-large $1.13 billion contribution from the state government and other participating public employers.
The funding level for the primary state pension fund at Kentucky Retirement Systems rose to 18.48 percent as of June 30, up from 14.01 percent a year earlier, according to a draft audit report presented Thursday to members of the KRS Board of Trustees.
About half of the one-year gain can be attributed to KRS’ impressive investment returns and the other half to the state’s large employer contribution, said David Eager, executive director of the Kentucky Public Pensions Authority. Additionally, state workers contributed $90 million into the pension fund during the year.
Eighteen percent is still dangerously low, potentially one stock market crash away from disaster. Kentucky teeters among the states with the nation’s weakest pension plans, including Illinois, New Jersey and Pennsylvania.
But it’s the highest level Kentucky has seen since 2015. Just three years ago, the pension fund fell to an all-time low of 12.84 percent.
“This is terrific,” said Larry Totten, a state government retiree who sits on the KRS board’s audit committee.
Kentucky has committed itself to a 30-year plan to reach full funding with its state pension plan by making the required contributions each year and meeting the assumed investment returns, Totten said.
“The state funding has to be there, for sure,” Totten said Friday. “I don’t think we’re going to see 25 percent market gains ever again.”
The state pension fund is in terrible shape because of two decades of under-funding by Kentucky governors and legislators. But starting in 2017, state leaders began shoveling huge sums of money into state pensions in an effort to replenish them, at a growing cost to the rest of the state’s $12 billion General Fund.
Kentucky’s two major public pension systems told lawmakers in September that they expect to need nearly $4.6 billion from the next two-year state budget when it’s written this winter.
The largest share of that appropriation would go to the Teachers’ Retirement System of Kentucky, which provides retirement benefits to 56,629 retired Kentucky educators, with 73,151 more educators actively enrolled. For fiscal year 2023, TRS expects to need $1.25 billion from the state; for fiscal year 2024, it’s $1.33 billion.
As of June 30, the Kentucky Employees Retirement System (Non-Hazardous) pension fund had a net position of $3 billion, up from $2.3 billion the previous year. It covers 123,857 active workers and retirees, most of them present or past employees of Kentucky state government.
A second, much smaller pension fund that exclusively covers 2,704 past or present employees of the Kentucky State Police was 33.75 percent funded on June 30, up from 28.02 percent the previous year.
A third pension fund that covers 239,626 employees and retirees in local governments and public nonprofits was 57.33 percent funded on June 30, a 10-point gain over last year’s 47.81 percent. That fund — the County Employees Retirement System (Non-Hazardous) — had a net position of $8.5 billion.
The state government, state police and local government pensions are overseen by the KPPA. Teachers have their own separate pension plan, overseen by the TRS.
This story was originally published November 5, 2021 at 3:22 PM.
