Pension plans will need nearly $800 million more next year, Kentucky Retirement Systems says

Tom Loftus
Courier Journal
Kentucky Capitol

FRANKFORT, Ky. – Nearly $800 million more will be needed next year to put the state and local government retirement plans of the Kentucky Retirement Systems on the road to recovery.

That breaks down to $477 million more for three plans that provide pension and health benefits for state government retirees, and $317 million more from local governments and school districts for the pension and health benefits of their employees.

To put the $477 million increase needed for the state government plans next year into context, consider that this year’s total cost to operate Kentucky’s prison system is a bit more than $500 million. Where the money for pensions will come from is undetermined.

But the Kentucky Retirement Systems board of trustees received and approved the recommended increases in taxpayer outlays for public pensions on Thursday. The increases would take effect July 1.

More on pensions:Most House Republicans ask Gov. Bevin to hold off on calling special session in 2017

Background:Kentucky pension reform: House Republicans say they're close to a deal

The massive dollar amounts come as no surprise and are largely a result of new assumptions the board made this year — lowering projections on how much the plans will earn on investments and on how much government payrolls are expected to grow.

John Farris, chairman of the board, said the new assumptions replace optimistic ones used by boards in the past that caused Kentucky Retirement Systems to not ask for sufficient funding, which led to the accumulation of billions in unfunded liabilities.

“Now we’re giving the right numbers. Lots of complaints about the right numbers. I understand it,” Farris said. “I hear that from local and county officials. I wish it wasn’t that way. I wish they were given the right numbers 10 years ago.”

The numbers released Thursday show that the state’s worst-funded plan — the main plan that covers most state employees — needs the majority of the new money.  This plan, for state employees in non-hazardous occupations, must get its funding boosted a whopping $448 million a year — from $844 million this year to nearly $1.3 billion in 2018-19.

Two other state government pension plans will require $29 million more next year, while two plans that cover local government employees plus the non-teaching employees of school districts (bus drivers, cooks, janitors, etc.) will require $317 million more.

The amounts that state and local governments and school districts will be required to contribute to pensions next year will change if the General Assembly passes a pension reform bill before the next fiscal year begins.

But exactly what that reform bill will look like, and when it will pass, are unclear.

Gov. Matt Bevin has said he will call a special legislative session before the year ends to pass such a bill. But the reform bill Bevin offered in October was met with strong opposition and was never embraced by his fellow Republicans who control the Kentucky House.

House Republicans on Wednesday asked the governor to not call a special session in the remaining weeks of this year. They said they want to press on to develop a revised bill that has their support and pass it in January after the regular legislative session begins.

Budget Director John Chilton said that pensions are likely to require a major infusion of additional state dollars next year. “We continue to think there will be a need for another $700 million in General Fund dollars — in addition to what we’ve been contributing in the past,” said Chilton, who is a member of the retirement systems' board.

Tom Loftus: 502-582-4257; tloftus@courierjournal.com; Twitter: @TomLoftus_CJ. Support strong local journalism by subscribing today: www.courier-journal.com/toml