A majority of benefit payouts for retired teachers is generated from investment income. Taxpayers only pay for approximately a quarter of benefit payouts. Actuaries have stated that if TRS continues to be funded properly, the pension system will be actuarially sound regardless of ratio of active workers to retirees.
Kentucky has three different retirement systems – TRS, Kentucky Employee Retirement System (KERS), and Kentucky Judicial Form Retirement System (KJFRS). One subgroup under KERS (KERS non-hazardous fund) is in precarious financial condition and is only funded at 12 percent.
Many elected officials confuse the unique issues with KERS with TRS. TRS is nationally recognized for its investment performance, risk management, and administrative management. While current funding levels are at 57.7 percent, the lack of funding is the root cause of our unfunded liability. TRS actuaries state that if the proper contributions are made, the pension will be actuarially sound.
TRS is nationally recognized for its investment performance, risk management, and administrative management. TRS has generated a 30-year compounded average investment return of 8.39 percent and typically ranks in top 5 percent in performance. TRS has never invested in hedge funds, subprime mortgages, or allowed or used placement agents for investments.
Kentucky, through the public pension oversight board, can compel a pension to disclose any of its activities and make recommendations for legislation. The fiduciary responsibility of pension board members should remain exclusively to the systems’ members and not subject to politics. The independently elected members of the TRS board have been effective and efficient in governing TRS. Simply compare the management and performance of TRS and KRS, which is dominated by gubernatorial appointees, and one can see what happens when you infuse politics into the oversight.
The General Assembly funded the percentage of payroll calculation outlined in statutes, but failed to make additional contributions needed during the last decade when the recession caused a drop in investment income.
KRTA appreciates full funding of our pension system during the last two budgets. However, ratings agencies responsible for evaluating Kentucky’s fiscal health have made it abundantly clear that the state’s failure to fully fund its pension debt will result in significantly lower credit ratings – increasing Kentucky’s borrowing costs.
Ironically, the legislature decided to skirt its obligations to the Medical Trust Fund in 2020 for retired teachers despite signing a shared responsibility agreement in 2010. Essentially the same administration that has chastised past administrations for not living up to its commitments did the exact same thing to the Medical Trust Fund.
Had the Kentucky legislature not “kicked the can down the road” for so many years by failing to fund the pension system, we wouldn’t have this issue. This is an issue created by the state that must be settled in a fair and equitable manner for all the beneficiaries they essentially borrowed money from.