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Adviser: State pension fund sinking fast

Rick Rand, D-Bedford, is chairman of the House Appropriations and Revenue Committee

Rick Rand, D-Bedford, is chairman of the House Appropriations and Revenue Committee

By John Cheves – jcheves@herald-leader.com

FRANKFORT — Kentucky’s state pension fund could run out of money in 2019 if contributions remain inadequate and market investments sag, under a worst-case scenario presented to lawmakers Thursday.

More likely, by 2018, the fund will pay out nearly half of its assets every year for retiree benefits, making it difficult to get the high returns it needs from large, long-term investments, pension officials said. The fund currently earns far smaller returns — 3.59 percent over the last decade — than its goal of 7.75 percent a year.

“You might be surprised at how expensive this is going to get,” Jim Voytko, president of R.V. Kuhns & Associates Inc., told the Program Review and Investigations Committee. R.V. Kuhns advises the Kentucky Retirement Systems, which covers 330,000 state and county employees and retirees.

“I’m already surprised,” replied Rep. Rick Rand, D-Bedford, a committee member.

Over the last two decades, the General Assembly sweetened retirement benefits for state workers, many of whom could leave after 27 years with a lifetime pension and free health insurance. But it failed to put enough money in the pension fund to honor its obligations.

Kentucky, like many states, now faces a growing wave of government retirees and no consensus on how to pay them without wrecking other state programs.

The pension funds were worth $16 billion in 2007 before the stock market collapsed, and then lost nearly one-third of their value. They partially have rebounded to $13.8 billion. Their unfunded liability stands at $16.6 billion.

Lawmakers discussed whether cutting retirement benefits to existing state workers and retirees should be an option, although Kentucky law forbids such cuts and one group — the Kentucky Association of State Employees — pledged Thursday to sue if benefits are reduced.

“It’s impossible to manage a retirement fund over a long period of time and not really make the benefits side of it a part of the equation,” said Rand, who also is House budget chairman. “It’s a huge part, it’s the biggest part of the equation. For us to bury our heads in the sand and say that’s a factor we can’t change or can’t discuss, I think that’s what’s gotten us to this place we’re at.”

But Rep. Derrick Graham, D-Frankfort, who represents many state workers and retirees, said the legislature is to blame for the solvency problem, not the state workforce.

“We went 17 years without funding the retirement system properly,” Graham said. “The investment side of it can be questioned, obviously, but we need to step up to the plate and admit our mistake.”

Several lawmakers said they had assumed the legislature fixed the solvency problem, at least in part, during a 2008 special session.

In changes made that year, lawmakers agreed to pay more into the funds, including $245 million in the current budget. However, they still are not contributing even half of what is needed to keep the funds solvent.

For the next decade, the fund will pay more in retiree benefits than it gets in state contributions, Voytko said.

Lawmakers also required employees who joined the state payroll after 2008 to work longer before retirement and contribute more toward their pensions. But the state won’t see savings from that for a generation, Voytko said.

Filed Under: KY General AssemblyRick RandState BudgetState Government

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  1. Mortimer says:

    Just another screw by the politicians. I think any idiot could be a politician. But, most idiots don’t want to kiss butt for donations for their campaigns their entire adult lives.

  2. Sam says:

    Do like any responsible decision-making body would: fire those responsible for the pathetic investment return rates, and fire the legislators responsible for not honoring their obligations.

  3. bobby wigglesworth says:

    It might be time to wakeup the people that work in goverment jobs to the reality of nothing is free.Goverment for the longest time has been overstaffed,overpaid,with little productivity to show for it.It does not produce a profit for the state and is only a cost center plus the least available business hours to the general public which is their only reason for existing.Reduce thier pay,benefits,and extend thier retirement age like all the rest of the US citizens.I will not pay new taxes to fund easy living.TAXPAYERS ARE GETTING FEWER BY THE YEARS SOONER OR LATER YOU WIL RUN OUT OF WORKING PEOPLE THEN WHO WILL YOU TAX.

  4. Helga says:

    What do you expect?!! Allowing people to buy 5 years of time, cash-in annual, comp and sick and retire with only 22 years of actual work, no wonder the system is about to run out of money. I know people who have retired at age 38 with full benefits. Most retire between the ages of 47-50 with full benefits and have spent most of their time counting the number of days until they are “out-the-door”. Maybe the state should revamp the policies and make retirees pay for their health insurance if they retire under a certain age. Maybe the state should make the “double dippers” choose between their retirement income and salary when and if they return to their old job or to another job in state government. Or, not allow retirees to work for state government for 5 years following retirement.

  5. Aggie says:

    Dont’ make a generalization that insults regular state employees. Regular state employees are mostly underpaid and hard-working. The only government employees that are overpaid and underproductive are the non-merit and contract employees, and they are mostly political appointees. And they do not contribute to the retirement fund. Most of them are also double-dippers, retired state employees who come back (to huge salaries). They are getting their retirement check and retirement benefits and huge salaries on top of it, without paying anything more into the retirement fund. As it is right now, the political appointees take the top jobs and salaries and don’t pay anything into the retirement fund from their salaries, and they are taking away jobs that current state employees should have an opportunity to fill. If current state employees were in the jobs that these political cronies take, more money would be contributed to the retirement fund, and morale among the rank and file employees would improve, once they saw they had a chance to at least try for some of these jobs.

  6. Lori says:

    I hate it when people that have no clue about what they are talking about voice an opionon. The workers are the ones who have been funding the state pension, not the tax payers. The state has failed to put their share into the system, while workers are forced to still put in their 5%. Legislators are the ones that offered up the early retirement…this fault does not fall on the workers. Also, the “double dippers” do not cost the taxpapers extra money. They are workes that already know the job. No extra training required. Also, the state already knows if they were a good workers. This job has to be filled any way. The “double dippers” do not collect health insurance benefits, which saves us money.

    The fault here lays with legislators that thought they could sit back and not put in contributions when the market was making money. If they had held up their end of the bargain, the state wouldn’t be faced with this problem. Stop blaming everything that is wrong on the state workers. Most of them are hard working employees. They get paid less than the industry standard and the trade off is that they have good retirement benefits. My husband makes much less than the people he graduated with that work in the private sector.

  7. eric says:

    “It might be time to wakeup the people that work in goverment jobs to the reality of nothing is free.Goverment for the longest time has been overstaffed,overpaid,with little productivity to show for it.It does not produce a profit for the state and is only a cost center plus the least available business hours to the general public which is their only reason for existing.Reduce thier pay,benefits,and extend thier retirement age like all the rest of the US citizens.I will not pay new taxes to fund easy living.TAXPAYERS ARE GETTING FEWER BY THE YEARS SOONER OR LATER YOU WIL RUN OUT OF WORKING PEOPLE THEN WHO WILL YOU TAX.”

    This is the standard response from someone who A.) Who is perfectly able to work but doesn’t work. B) Who is perfectly able to work but doesn’t work AND pay taxes. or C) Who is perfectly able to work but doesn’t work, doesn’t pay taxes AND DRAWS A CHECK FROM SAID STATE. The vast majority of us front line workers make less than minimum wage workers OR about the same as a manager at a convient store. We have to pay for our insurance and get a pay raise that is laughable by the private sector standards. We have to deal with idiots that make comments such as the one made by you Aggie who gets the panties in wad the moment THEY don’t get their way.

  8. If cuts are required then they should be made across the board. Current state workers were promised 5% raises yearly but this has not happened in over 8 years. Governor Beshear has already stated that there will be no raises for the next 2 years so why wouldn’t retirees also have to face cuts. I’m also not opposed to paying a fair share for my insurance which should also be required from retirees.

  9. kymiracle says:

    Maybe we, state employees need to get into the legislators retirement system like they are tryiny to get into ours. Just something to make you go “hmmmmm”!

  10. Josh says:

    Awesome!! Out of cash by 2018 dang I will just miss it!! I was set to quit in 2050 LMAO. At least I am 25 and can figure something out long before I have to retire. I feel sorry for those that are 9 years or a little over away. THANKS FRANKFORT!! I love paying for something I will never get Ah I already do it for Uncle Sam on Medicare and SS whohooo!!

  11. diehardblue says:

    To Lori, You said the workers are the ones who contribute the 5% and it is not costing the taxpayers anything, and that the legislators dropped the ball by not coming up with their share. Where in the world do you think the legislators get their money; from the taxpayer. If the legislature would make its employees wait until they are 65 like we do to get full Social Security, then the fund would not be short. Remember state employees are public servants, and cannot compare their salaries to private enterprise.

  12. Sandy says:

    I had over 32 years of actual service when I retired in 1999 from state government. An amount was deducted automatically from my paycheck twice a month the same as social security and other taxes. I pay the same taxes (sales, gasoline, property etc)that everyone else in this state is required to pay. To get a good insurance plan, the retiree and/or employee pays the difference between what the state allows and the cost of the policy they prefer. In a few years when I reach age 65, I must subscribe to Medicare and then the state will furnish a supplement. I will pay the same as any other citizen for Medicare.

    I went to work for the state in 1967 right out of high school with a starting salary of $219.00 before taxes. I never made the $40,000 (quoted in a previous article). At the time I was hired, you were required to have 30 yrs in before you could retire with full benefits. Then the legislature lowered it to 27 years. I retired while the 5 highest yrs was still in effect.

    Don’t penalize those of us who work or worked in the trenches. Any cuts should first be to the representatives’ retirement plan and if a special session has to be called to finish up what should have been completed during a regular sesson, it should be without pay and at the representatives’ expense since they did not do what they were elected to do during the timeframe allotted.

  13. Linda says:

    Some of you have no idea what it is like to work for the State of Kentucky. I worked for them for 35 years and feel I truly earned my retirement check. I paid into that fund every month just like the private sector pays into 401K program. Only difference is the way it is invested and the way it is paid out. bobby wigglesworth has no idea what he is talking about. overstaffed, that is a joke,overpaid,even bigger joke.productivity in some bureaus may be low, but not in the one I worked in as if it had been we would have lost all federal monies. We never lost any. You need to find out what you are talking about if you are going to say things so ignorant.

  14. David says:

    Mr. Rand the biggest part of what brought us to this point is the fact the legislature did not step up to the plate for 17 years and add the money to the retirement fund they were supposed to.They spent it on other projects.It is my understanding the main job of the legislature is to produce a budget.As a body you cant even do that in the designated amount of time.You have to have a special session.Quit wasting precious time and money on such trivial matters as trying to get Coach Hall(nothing against him) into the Hall of Fame and upgrading offices with cherry paneling and big screen tv’s. The whole lot of you need to be sent packing back to the house and let others that havent been tainted by lobbyists and other outside influences do the job.

  15. jane doe says:

    Where in the hell do some of these people get that we make money, I have been with the state for 4 years and make 24,000.00 actually national average I am at poverty level, we have a lot of fatcats that make the big bucks and do nothing and we have a whole lot of skinny cats that make no money but we work our butts off. Now I have had 2 raises that totaled up to 5% for four years 1.25% a year per year for 4 years now tell me where the incentives are to work for the state the Retirement is why I took a 20,000.00 cut in pay to take this job and for the insurance now what is the incentative to keep me here? Then we saw some workers get big raises but they are gone now, and then the others got a 1% raise. The fat cats got fatter and some got fired but the little skinney ones are still working for peas and water.

  16. Chris says:

    Hey Bobby you are misinformed. State govt. workers numbers are approx. the same levels they were in the mid 1980s. Despite population increase, exploding regulatory mandates, and unfunded federal legal requirements more work is performed by less staff thus not overstaffed. One percent or no raises over the past four years even in this low inflation economic market w/ benefit cuts does not equate to overpaid. For my position I’m in the fourth quartile of the payscale according to careerbuilder.

    Also Aggie non-merits do pay into KRS, contract employees only number a couple of thousand employees and don’t draw benefits, and the only one’s to blame here are the legislators for their complete irresponsibility of running this system into the ground. Interestingly enough the pension should be at least 50% funded because that is the actual cash dollars taken out of the employees check. It isn’t; how sad.

    It is a shame we can’t tax the opinions of fact-deprived fools and the irresponsible actions of our legislature. We would all be in tall cotton then.

  17. Lori says:

    To diehardblue, I would love to see the outrage you would have if your employer promised to match your 401K contribution and then considered changing the contract after you had paid in your amound for 20+ years. State employees are paid with taxpayer money for providing a service. Most state employees don’t expect to receive the same salary as the private sector because of the promise of these retirement benefits. Without this, the state will loose the good workers that have job offers elsewhere. You might not see this as a problem because you don’t know all the day to day ways that state workers make things better for our state. Did you know that KY has one of the hightest ranked Transportation Cabinets in the USA? Go drive around in some other states and see the conditions of roads and you might appreciate what you have here. Yes, the taxpayers pay the salaries for these employees, but it is the workers salary that is funding this pension for many years. They didn’t sign up to be servants and work for free just because they are state employees. It is a job for them and they aren’t willing to work for lower pay and crappy benefits out of the kindness of their heart, as I am sure you wouldn’t do at your job either. Most haven’t had a raise in 8 years and the govenor has already said it will be at least 2 more. I think they have a right to at least have the pension they were promised since they haven’t received the 5% raise per year that was promised at the time of employment.

  18. Commenter1978 says:

    I wish the H-L would look into how much double dippers are costing the state. Seriously, these people are making off like bandits and there are tons of them. Almost anyone who retires from CHFS is back a month or two later. It’s disgusting.

  19. SomeGuy says:

    Commenter1978- Would you please explain to all of us how “double dippers” cost the state money? A vacant position is filled- it doesn’t matter what the person’s retirement status is. The same salary is going to be paid out for the position regardless.

  20. jamie says:

    STOP PENSIONS FOR NEW HIRES !!!

  21. jamie says:

    Responsible private sector companies stopped pension programs 30 years ago! Because the costs are UNSUSTAINABLE !!

  22. jamie says:

    State government believes that they are somehow ABOVE the regular working stiff.

  23. jamie says:

    Simple solution. Effective immediately ALL NEW state hires open a 401k plan with a modest 25% state match! PROBLEM SOLVED!

  24. jamie says:

    Did I already mention that the legislature should move to TERMINATE the PENSION SYSTEM for new hires!!

  25. tiredofthebadrap says:

    I am so tired of people saying that state workers don’t work. Let’s all take off for one day and see how much complaining there is that we aren’t there doing our jobs. Double dippers do cost the state money because instead of hiring in a person at the bottom rung of the pay scale you are paying a higher salary for their experience PLUS their retirement benefits for them mostly doing the same job. It also keeps those of us who have been working to move up for 15 years from having the opportunity to do so. I don’t blame the people double dipping because you have to do what’s best for you and who wouldn’t take advantage of that opportunity. Also many local governments and universities opt out of the state insurance for a better group rate. Then when their people retire they get put back into the state health insurance pool as older sicker individuals making our insurance premiums go up. I bet the legislative retirement system has been fully funded.

  26. snappy says:

    Jamie – how about the state put in ZERO matching contribution? Company matches are for private, profitable companies, not govt.

  27. Commenter1978 says:

    SomeGuy – There are still double dippers in the system who are receiving or will receive two pensions. That alone is an unbelievable cost to the taxpayers that was only recently put out of practice. Those who do not fall under the old, two pension system are rehired but do not pay into the retirement systemm; still they receive a full paycheck while also receiving full retirement. So there are a few ways these people are costing the taxpayers. In addition, they also prevent others from moving up the ladder when they pop back into their old jobs or a job with a new title that has all of their old duties.

  28. Seymourhiney says:

    This was a no brainer. Without proper inflation investment, a pension fund is doomed to failure.

    Even thinking a pension fund could substain at a 7.75% growth is criminal. There is no historical data to support that conclusion.

    KY politicians, just like their counter parts throughout the country operated on the greed track, eliminating realistic thought.

    Good times are far away.

  29. SomeGuy says:

    Commenter1978- A person receiving two pensions is no more costly than two people receiving one pension each. Actually the cost is probably less for the double dipper since you only have to provide health insurance once instead of twice for two separate retirees. It’s true that new double dippers do not pay into the pension system the second time around but I don’t think there are enough of them to make that a significant issue. If it is, change the law and make them contribute! If double dipping is so evil stop hiring them back!!!

  30. SomeGuy says:

    I haven’t done the research but I’m willing to bet that a lot of the legislators responsible for this mess are still holding their seats. And what will we do about it? Re-elect them!! Again and again.

  31. opinionated says:

    Thank you to those of you who gave educated and productive comments. My posting is not necessarily productive, simply my opinion. So, read no further if you are looking for more.
    I was appalled, with our budget issues; we paid the special sessions expenses this year. I truly expected our legislatures to do their part and not charge the people of KY their exorbitant rates to return to work and finish something that they should have finished w/o a special session. I truly don’t feel represented by our legislature.
    As far as all the other opinions that have been stated – there is often a grain of truth in everyone’s perspective. Yes, there are people who sit and do very little for their high salaries. In our area alone we pay out a quarter of a million dollars a year in salaries to people who don’t even know how to do the job. Then there are us lower salaried staff who do our work and their’s simply because it has to get done. I work very hard for my small salary and don’t even use the state benefits. I know many people who don’t use the state benefits because their spouse has better benefits.
    Yes, there is foolishness that goes on in state government, but it is hard to nip it in the bud in a corrupted system and government has always been a corrupted system at one level or more.
    On that note I would like to say that there are a whole lot of really good people who work in the corrupted government who are not corrupted. There are many hard workers and good people! I work very hard for what is not considered very much money by the standards of most people I know. At the same time, if I don’t want this job then I can quit and someone who does want it will fill it.
    Finally, we all recognize that legislature really messed things up and made horrible choices and didn’t truly represent the people – but, what do we suggest they do about it now? Firing people is holding them accountable, but it doesn’t fix anything. How does the problem get corrected? I, like many others, have expressed my opinions, but we need to be proactive and constructive and some of these postings need to have legitimate suggestions on how to help.

  32. John says:

    There is a lot of ignorance in these comments. Apparently, people think if you take a state job, you should be happy to have less benefits and pay than in the private sector. Much like we were told years ago by Mike Inman, “it’s a calling”, right?

    Let me tell you something–we are no less skilled than anyone else out there. I spent the first decade of my career making a living in private industry as a technical person with two degrees. Although I make half of my old salary in state government, I console myself by thinking that someday I will get to retire on about 52% of my current salary. And no, I won’t be retiring at 38 years old (another foolish example), and NO, “most” state employees do not retire at 47-50 years old. I am fairly typical, and I will be retiring at 57.

    Everyone should remember the state is like any other employer. People don’t come here to work out of the goodness of their heart. We come here to make a living and hopefully receive decent benefits. I am already making half of the private sector, but I’ve been here too long to leave and start over.

    The state already has a tough balancing act–they provide the same benefits to lawn care people, office workers, low-level managers, engineers, builders, and computer programmers. When the engineer gets a pay cut, so does the secretary. This never works out fair anyway. We have secretaries making more than the computer programmers. Some people are overpaid, while others are vastly underpaid.

    Screwing us yet again will not solve the problem. If the state breaks their contractual agreement, then it will be a sad day and no one will ever trust the state again. This should not even be a topic for discussion. You want to know about your low productivity? We are already receiving 0% raises. Think about what morale must be like with constant attacks on your family income while the legislature continues to vote itself more money.

  33. John says:

    Snappy, how about the state start matching our 401k, like private industy often does?

    No, instead, I say let’s have private industry start paying like state government and see how you guys like it.

  34. John says:

    “Responsible private sector companies stopped pension programs 30 years ago! Because the costs are UNSUSTAINABLE !!”

    It’s true that pension plans are slowly going away, but they did not stop 30 years ago… lol. Some companies still have them.

    I’m fine with doing away with the retirement plan the state currently has… AFTER I am retired. You can’t pull the rug out from under someone when they’ve committed themselves to the job for 20 years.

    What you want to do reminds me of what Enron did to employees.

  35. Jimmy says:

    Derrick Graham said it right, this problem is a legislature problem, not a state worker problem. When the employees put their money in and the employer (aka the legislature) doesn’t put theirs in, what did they think would happen over time??? If they would think beyond the next election and think about long-term, they wouldn’t make these stupid decisions. I’m thinking long-term, putting my money in and also putting what little I can afford (on my salary) into a 401k also…if I can do that, the legislature can do the same for their share. I have already made up my mind, I’m voting against all incumbents in the election this year and next year, and I urge all Kentuckians to do the same. If we get rid of these fat-cats who have bankrupted everything they’ve touched, maybe it will get fixed by the new crop.

  36. Jim says:

    Lori said it best. The employees and local goverments have to pay an ever increasing share due to the state not fulfiling thier pension obligation.

    “The workers are the ones who have been funding the state pension, not the tax payers. The state has failed to put their share into the system, while workers are forced to still put in their 5%. Legislators are the ones that offered up the early retirement…this fault does not fall on the workers. Also, the “double dippers” do not cost the taxpapers extra money. They are workes that already know the job. No extra training required. Also, the state already knows if they were a good workers. This job has to be filled any way. The “double dippers” do not collect health insurance benefits, which saves us money.

    The fault here lays with legislators that thought they could sit back and not put in contributions when the market was making money. If they had held up their end of the bargain, the state wouldn’t be faced with this problem. Stop blaming everything that is wrong on the state workers. Most of them are hard working employees. They get paid less than the industry standard and the trade off is that they have good retirement benefits.”

  37. RetiredLady says:

    Something to think about . . . The legislators have their own retirement system. How many years do you think it was underfunded? I’ll say NEVER. If KERS is in trouble let’s get some money from the legislators retirement system.

    The underfunding is not something caused by state employees. It was caused by the legislators. What happens if you don’t put enough money in your checking account – you get overdrawn. What did the legislators think would happen by not putting in the required money? And don’t blame the investment committe – KERS was headed downhill before 2007. The stock market crash just hurried things along.

  38. WOWWWY says:

    This bobby wigglesworth is a genuis he knows exactly everything about the entire world…he should be Governor or President or maybe even God if he knows so much. I guarantee our state workers put their time in the same as everybody else in the owrld. They come in at low pay with the only incentive being a few perks such as retirement and insurance. Wait till bobby gets 65 he will probably need state benefits or need our government in someway to either bury him or feed him.

  39. John J says:

    Finally, somebody who “get’s it”. I question what the board members for the retirement systems are doing in lobbying Frankfort. They have the fiduciary duty for the fund. Heck, some of them are appointed by the governer, or elected by retirees. They should be “standing on their hands” if the fund is not being funded properly.

    They will say its the staff’s responsibility, but the staff executes on policy set by the board.

    As for the previous “firing” those responsible for not achieving the goal of 7.5% returns on investments. If you were going to fire someone(s) for this, you would have to fire every investment manager, public and private, in the US. When goals are set, they are “targets”. The downturns in the market can often not be anticipated.