DYCHE | More on pensions needed from Ky. Gov. candidates - WDRB 41 Louisville News

DYCHE | More on pensions needed from Ky. Gov. candidates

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By John David Dyche
WDRB Contributor

Perhaps after Kentucky's gubernatorial candidates complete what has apparently become an obligatory "debate" on Kentucky Sports Radio they will devote at least a comparable amount of time to a joint discussion of a single issue: Kentucky's public pensions. The topic may lend itself to superficial sound bites, but merits more in-depth treatment by those desiring to lead the state for the next four years.

A good place to start is the recent asset/liability study of one of Kentucky's severely underfunded pension plans, the Kentucky Employee Retirement System's Non-Hazardous Pension Plan, by the independent firm R.V. Kuhns (RVK).

Governing magazine calls this plan the "worst-funded state retirement system in the country." Why?

"It's currently 22 percent funded, meaning it has less than one-quarter of the money it will ultimately need to pay out all its retirement paychecks to current and future retirees. And, the audit adds, it's going to get worse before it gets better."

The RVK study provides the gory details. It says that the shortfall equates to approximately $9 billion, which is roughly the size of Kentucky's entire annual general fund budget.

The study says the potential consequences over the next two decades include "persistent funding shortfalls, elevated contribution levels, unsustainable payout ratios, and, in the worst-case scenario, complete depletion of the asset base." It adds that there is no reasonable investment strategy that would allow the plan to "invest its way to significantly improved financial status."

Indeed, as Jim Carroll of Kentucky Government Retirees pointed out to the state legislature as reported by Governing late last year, Kentucky has gone deeper in the hole of unfunded liabilities even as its plan investments have earned relatively strong recent rates of return. Moreover, the plan's precarious position will limit its investment options going forward.

According to RVK, "positive outcomes are extremely dependent on the contribution policy." After failing on a bipartisan basis for years to make adequate funding contributions the General Assembly has passed modest reforms promising to do better. Easier said than done, however, especially as Medicaid and other expenses also increase.

The study also notes "that even small changes to the benefit policy can have a meaningful long-term impact on the likely future outcomes of the Plan." Benefit reforms are fraught with political peril and courts in other jurisdictions have rejected efforts to change what is sometimes described as an "inviolable contract."

If you can't read or understand the entire RVK study, Joe Sonka offers a good summary of its sobering conclusions on the Insider Louisville website. Sonka says, "Kentucky will likely soon face the current political drama of Illinois, which rivals Kentucky in having the worst public pension crisis in the country."

Against this backdrop, William A. Thielen, executive director of the Kentucky Retirement Systems, is retiring. Carroll sardonically tweeted recently that the job description for Thielen's replacement made "no mention of turning loaves and fishes into pension assets."

So where do the candidates for Kentucky governor stand on this critical issue? Matt Bevin, the presumptive Republican nominee after an apparent razor-thin primary win, offers more than Democrat Jack Conway does, but neither's platform is proportional to the magnitude of this problem.

Predictably, Conway's campaign website does not have an "issues" section. In a part of it about his record, however, Conway claims credit for joining a lawsuit that produced a settlement requiring "$23 million to be returned to the Kentucky Retirement Systems for losses incurred by investments in mortgage-backed securities."

Conway told the Kentucky Chamber of Commerce that the most important thing we could do to address the pension crisis was to "grow our economy and create more good-paying jobs." He also promises to work with both parties to make "the contributions called for by the actuary in order to get our pension system healthy again."

Bevin pledges an outside audit, putting future state hires in a private sector-style 401(k) plan, and examining all options for moving existing employees into such plans. He also says, "All current employees should be required to make increased pension contributions in order to help secure their own pensions and make the system more financially sound."

Simply stated, Conway offers next to nothing while Bevin offers more than he can deliver. Neither offers answers sufficient to actually address the problem. There are no easy options, and there will be pain. The situation calls for rare and precious political qualities – courage and leadership.

So when the candidates finish expounding about why they prefer John Calipari or Rick Pitino maybe they will favor us with a more meaningful explanation of their proposals for what the Kentucky Chamber calls "the single most significant threat to Kentucky's ability to ensure adequate funding for our schools and the services that are important to our citizens."

But a truly substantive and sustained discussion of pensions by the candidates is about as likely as one of them picking an excellent Kentucky small college coach, like Bellarmine's Scotty Davenport or Centre's Greg Mason, over their high-profile counterparts.

John David Dyche is a Louisville attorney and a political commentator for WDRB.com. His e-mail is jddyche@yahoo.com. Follow him on Twitter @jddyche.
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