Kentucky Teachers' Retirement System to blame for its own debts, Senate president says

FRANKFORT, Ky. — Senate President Robert Stivers said Wednesday that the multi-billion dollar debt of the Kentucky Teachers' Retirement System is due to poor management of the system — not a lack of funding from the General Assembly.

Stivers, a Manchester Republican, was speaking at a press conference Wednesday he called to clarify what he said was "misinformation" regarding the causes of Kentucky's public pension crisis.

He said he particularly wanted to respond to teachers and others who have said to him since the release of Gov. Matt Bevin's pension reform plan last week that the unfunded liabilities in the teachers system are due to the General Assembly failing to adequately fund it through the years.

More on Kentucky pension reform:

►Will pension plan make it harder to attract teachers?

► GOP, Democratic lawmakers heated as they debate Gov. Bevin's plan

► Gov. Matt Bevin says failure to fix Kentucky pensions is ‘road to insolvency’

Stivers insisted that during his 20 years in the Senate, the General Assembly has fully provided the funding requests that "governors sent us and what the statutory requirement is."

But teachers unions quickly responded that Stivers' characterization is misleading and that the General Assembly provided about $1.9 billion less to the system between 2008 and 2015 than the system's actuaries said was needed and the system requested.

The Kentucky Education Association said in a statement, "Although it's a convenient argument now, TRS management and investment returns are not the issue. The retirement system has never missed a payment to a teacher in its 76-year history. KEA has full faith in the leadership of" the teachers system.

The dust-up over who's to blame for $14.5 billion in unfunded liabilities within the teachers system comes exactly one week after Stivers joined Bevin and House Speaker Jeff Hoover in releasing their plan to address Kentucky's pension crisis.

Bevin and the leaders of the legislature's Republican majorities say the plan they call "Keeping the Promise" is a sound solution to begin paying down the overall pension debt, which exceeds $40 billion when the teachers system's debts are combined with those of seven other state retirement plans.

The GOP leaders say that the plan honors all legal commitments to retirees and public employees and that concessions it asks of current public employees are a modest part of a sacrifice also being shared by taxpayers.

But some groups — particularly in the education field — have strongly protested, saying many plan provisions indeed break benefits they were promised.

This week the heads of five groups (the Kentucky Education Association, Kentucky Association of School Administrators, Kentucky Association of School Superintendents, Kentucky PTA and the Kentucky School Boards Association) issued a joint statement saying they were "seriously concerned." They questioned whether the plan would increase the cost of the teachers system, place greater financial burdens on local communities and decrease retirement security for teachers.

Responding to the objections of teachers who blame a lack of funding from state budgets, Stivers emphasized on Wednesday that the legislature has fully funded teacher pensions under a 30-year-old law establishing the method. He also said legislatures have always provided at least the amount requested by governors.

But the teachers unions say that this ignores a newer law that requires the legislature to make up a deficit in the past budget with each new budget. 

Stivers said that even if this is accounted for, a teachers system report of 2013 showed that less than 10 percent of its debt was attributable to a failure of the legislature to provide sufficient contributions.

"Somebody needs to be asking questions of the system," Stivers said. "Where's the other 90 percent of the problem?"

More:  Would federal tax proposal on 401(k)s undercut Bevin's plan?

Consider this:  Does Matt Bevin have the votes to pass his plan?

Officials of Teachers' Retirement Systems did not directly respond to Stivers but pointed to the system's most recent annual report, which says that the system's investment returns in the past five years rank in the top 10 percent of plans that manage more than $1 billion and that over the past 30 years the numbers have exceeded the plan's assumed rate of return of 7.5 percent.

They also noted the 2013 report cited by Stivers covered a six-year period that included the Great Recession, a time when investment returns plunged for nearly everyone.

Brent McKim, president of the Jefferson County Teachers Association, said he agrees that multiple factors led to the big unfunded liability within the system. But he added that "underfunding by the legislature is a very significant factor."

The Kentucky Education Association statement said if the General Assembly had provided the funding that the system actuaries had said was required and was requested of the General Assembly between 2008 and 2015, the system would now have $3.8 billion more in assets.

Opinion:Bevin deserves credit for tackling pensions, but hard work is ahead

Related:How did we get into such a big mess?