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Former Kentucky Pension Trustee Sounding Alarm on Funding Shortfalls Facing KERS, KTRS

Chris Tobe is a man who is currently playing the role of “bearer of bad news.”

He worked as a trustee with the Kentucky Retirement Systems from 2008 to 2012, where he got an up-close-and-personal look at how the state’s pension systems were being underfunded. Tobe is also the author of the book Kentucky Fried Pensions, and he makes presentations around the state detailing the crisis facing the commonwealth’s pension programs.

While Gov. Steve Beshear and state lawmakers from both parties have hailed pension reform efforts passed in 2013, Tobe says it’s a drop in the bucket compared to what is needed to fix the underfunding issue.

Compared to the rest of the nation, Tobe believes “Kentucky is probably second worst to Illinois” when it comes to the health of its public pension programs.

Kentucky’s pension plans include the Kentucky Employee Retirement System, or KERS, which covers state workers. KERS also includes CERS, the County Employees Retirement System, and a smaller program for state police retirees.

The Kentucky Teachers Retirement System, or KTRS, covers public school teachers and many workers at state-funded universities.

Chris Tobe came to the studios of WKU Public Radio for an interview about Kentucky’s pension systems, the disconnect between what politicians are saying about the plans and the funding shortfalls they face, and the potential long-term impact of the state running such underfunded pension plans.

Here are some excerpts from our conversation:

Give us a timeline on when this started going downhill. Have the pension plans always been underfunded, or is there a moment in time that you can pinpoint as to when the shortchanging began?

“The big (problem with underfunding) began in 2004, when KERS was funded at 54 percent. Then in 2005, it was 63 percent; 2006 it was 51 percent, 2007 it was 53; in 2008 it was 43; in 2009 it was 41; in 2010 it was 44; and in 2011 it was 52.”

“And even now, where we’re trying to get it up to 100 percent—that’s not paying your pension off. That’s just like making your full mortgage payment.”

“The teachers’ retirement started going down more gradually. It was down to 74 (percent funded) in 2009.

Tobe says Kentucky's pension problems will cause the state to lose potential business to neighbors like Indiana and Tennessee.

And it’s been in that 75 percent range. The teachers’ system, since it’s much bigger than KERS, the actual liability is almost as big. So, from a perspective of when people look at our state debt, the teachers’ retirement liability is close to the KERS.”

When you look at the financial realities facing these pension systems, how does it square with what the Governor and politicians from both parties are saying to the public about this issue? The 2013 legislature passed a measure that will generate $96 million in the 2015 fiscal year and $100 million in fiscal year '16.

“I feel like I’m on another planet whenever they start talking about it. It’s like, ‘we’ve fixed this’, or ‘we’ve done this.’”

“At WKU, (Economics Professor) Brian Strow has made some very good predictions that the structural deficit is about $1 billion a year—that’s the difference between what you should be paying into the retiree health and pension plans, and what they’re actually paying.”

“So when they say, ‘oh, we’re giving $100 million more in real money,’ that means we’re underfunding it by $900 million a year instead of $1 billion a year. So we’re going into the hole, but we’re digging a little bit slower.”

“It’s almost mind-boggling the lack of understanding of this pension problem among legislators, and among people in Frankfort in general.”

Chris Tobe

“Part of the reason is, they don’t want to know, because the solutions are more painful than the problem.”

Speaking of solutions, what are they? What would it take to really fix these problems?

“Well, when you’re talking about $1 billion a year in structural deficit, that’s like taking the sales tax from 6 percent to 8 percent, or an income tax from 6 percent to 8 percent.”

“How can a politician give you the largest tax increase in history, and you’re not getting anything for it? We’re just doing it for things we forgot to tell you about. So Frankfort’s almost got themselves in an impossible political situation.”

We have a large coverage area, with many people who are impacted by the health of these pension systems. Let’s take Bowling Green, for example—tell us the groups of people who have a stake in KERS and KTRS.

“Well, KERS—the worst funded—the people affected by that in the Bowling Green area would be the Western Kentucky University non-teaching employees….the mental health agencies—Lifeskills in Bowling Green area, but that pertains to other mental health (agencies) in other parts of the state—they’re in KERS.”

“Child support attorneys with the county attorney’s office are in the KERS. And anybody who is a state worker will be in KERS, as well as some of the non-teaching employees in community and technical colleges.”

“So you’ve got a wide-variety of people in the worst-funded system.”

“In KTRS—everybody knows you have public teachers, but you also have (WKU’s) faculty in KTRS.”

“In CERS, you have every city and county employee, and non-teaching school employees, like lunch workers, and school bus drivers.”

“This thing just permeates and affects hundreds of thousands of people in this listening audience. And—of course—everybody is paying for it with their taxes, as well.”

What impact does this pension nightmare have on Kentucky’s business climate and future growth for industries in the state?

“I did an interview in Louisville, and (the host) had the governor of Indiana on. And I was talking about a 23 percent-funded pension, and (Gov. Mike Pence) said, ‘we have an 80 percent-funded pension over here, and businesses come over here and relocate.’”

“Indiana is actively taking business away from Illinois, and is now looking at Kentucky, as well. Illinois had to do a 40 percent corporate income tax increase, and what I’m sure Indiana and Tennessee tell prospective (businesses) who are looking at places, ‘Kentucky is going to be the next Illinois, and you’re going to see a big tax increase. Go with us, don’t go there.’”

“So I’m certain that’s what is happening. On the southern part of your (listening audience), we’re going to lose businesses to Tennessee, and on the northern end, Indiana.”

Kevin is the News Director at WKU Public Radio. He has been with the station since 1999, and was previously the Assistant News Director, and also served as local host of Morning Edition.
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