Kentucky drowning in pension financial crisis


Dave Adkisson - Guest columnist



Here’s a chilling fact. If all 4.3 million Kentuckians were asked to pitch in to fix the state’s $36 billion public pension problem, every man, woman and child in the commonwealth would have to pay $8,268.

That $36 billion obligation represents the unfunded liabilities that make Kentucky’s public pension systems among the worst-funded in the United States. (An unfunded liability is the difference between the value of pension benefits promised and the value of assets a pension plan has on hand.)

The financial crisis is putting Kentucky under water and threatens the retirement security of state and local government employees and teachers. But it also has a critical, and negative, effect on all Kentucky taxpayers.

The underfunding has prompted national agencies to downgrade Kentucky’s credit rating. That means it costs taxpayers more to build roads, schools and other important projects that serve the public.

So, how bad is it? A national report last year compared state pension funding levels for all 50 states. Kentucky ranked 49th – only Illinois was lower. The report found the national average state pension funding level to be 71.8 percent. Kentucky’s combined funding level for all its systems was only 44.2 percent. That means the systems have roughly 44 cents to pay for every dollar they owe retirees.

We can look at this in another way: Kentucky’s total unfunded pension liability of $36.4 billion in the last fiscal year was more than three and a half times the total General Fund tax revenue the state collected in that entire year.

The Kentucky Chamber has focused on this growing crisis for several years. Our first Leaky Bucket report in 2009 pointed out that growing public benefit costs could not be sustained.

Things have gotten considerably worse since then as the deficit – or unfunded liabilities – of Kentucky’s public retirement systems has grown at an alarming rate to the $36 billion level.

So, how did this happen? There have been numerous reports that the underfunding crisis was primarily the result the failure of past governors and General Assembly to adequately fund the employer’s contribution to the pension systems.

But it is important to note that other factors also played a key roll in the shortfall. Those include investment losses since the 2008 recession, a failure to meet the assumptions that pension experts made regarding economic and demographic trends, and giving retirees cost of living adjustments and other benefits without providing funds for them.

Yes, it’s a complicated and frequently boring topic. But it also threatens to curtail the state’s economic growth and ability to provide needed services for the public.

Gov. Matt Bevin’s proposed budget includes significant investments in the pension systems that represent an important and bold step toward restoring their financial health. No doubt, making these payments will be painful across the rest of state government.

Reflecting our longstanding concerns about this problem, the Kentucky Chamber is also advocating for, among other changes:

Comprehensive performance audits of the retirement systems

A review of the ramifications of moving employees to a 401K plan

Increased transparency in which each system clearly reports investment returns and fees paid to make the investments

An annual report of the Public Pension Oversight Board that analyzes the operation of each pension system compared to other states

A prohibition against anyone seeking to provide investment services from making political contributions to key policymakers

It took two decades for Kentucky to get so deep under water and it will take years of fiscal discipline by our governor and legislature for the commonwealth to come back up to the surface. For more details about this issue, visit kychamber.com.

Dave Adkisson

Guest columnist

Dave Adkisson is president and CEO of the Kentucky Chamber of Commerce.

Dave Adkisson is president and CEO of the Kentucky Chamber of Commerce.

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