Kentucky’s pension systems are in critical condition. While certain state retirement plans are arguably in "better shape" than others are, every system is severely underfunded and rapidly spiraling downward towards a single outcome: no more money to pay Kentucky’s retirees.
Understandably, retirees and those nearing retirement are concerned. Over the past 10 years, Kentucky’s pension systems have lost more than $7 billion in value. If we keep with the current pace, the only way Kentucky will be able to fund these systems will be through massive cuts to important programs, hurting education, health care, public safety and infrastructure.
Without significant fundamental changes, our retirement systems will become bankrupt. Change will not be easy, but it is necessary. Our state's credit rating has been repeatedly downgraded in recent months and years as a result of our unfunded pension liability. We must stop kicking the can of financial responsibility down the road. We must solve this problem — there is no other option.
In order to fully understand the severity of this crisis, we hired an independent pension consultant firm to analyze each of our pension systems. At this time, we have received three reports from this independent group, all of which are currently under review by elected leaders in Frankfort. Going forward, these reports will help inform our difficult decisions as we prepare for a special session. Some of the recommendations will likely be adopted and others will likely not be adopted.
Our consultants discovered the biggest cause of the shortfall was erroneous actuarial assumptions made by past members of the boards of these systems, which led to significant underfunding. Sadly, it seems past assumptions were often manipulated by the prior pension boards in order to minimize the “cost” of pensions to the state budget. Unreasonably high investment expectations were made and funding was based on false payroll numbers. The result was to provide a false sense of security and justify smaller than necessary contributions to the pension plans. This was a morally negligent and irresponsible thing to do.
We refuse to hide the problem by understating liabilities, as others have been eager to do. Going forward, we must require all of our state pension systems to use a funding method that cannot be so easily manipulated by politically appointed board members. This change alone will ensure a much higher funding level is provided to meet the legal and moral obligations we owe to our retired teachers and public servants.
We must also make certain that retired teachers and other public employees are not negatively affected by any required pension changes. Those who count on their retirement today should be able to count on that same retirement tomorrow. We intend to meet the legal obligations we have to each retiree.
Likewise, any changes made to our pension systems will not negatively influence the plans of those nearing retirement. The General Assembly will not pass any legislation with an emergency clause, which would make any changes immediately effective. Rather, public servants and teachers eligible for retirement will receive adequate time to understand and review any options they may have. Additionally, it is not our intention to strip away any accrued benefits from current public servants or teachers.
We are fully committed to solving this very important challenge by making thoughtful, but necessary, changes. We refuse to allow continued manipulation of these plans for the benefit of a few well-connected individuals at the expense of taxpayers, hard-working teachers and other public servants. For those now retired, for those still working and for those yet to come, we are determined to save the Kentucky retirement systems.
We will not kick the can down the road. We were elected to fix this problem and we will. The fiscal abuse of Kentucky’s retirement systems is over.