It’s no secret that Kentucky’s pension system is in trouble. But it has not always been this way.
In fact, back in 2000, the commonwealth’s pension debt was a meager $960 million. Five of Kentucky’s six public pension systems were running generous surpluses. The Kentucky pension system was among the nation’s strongest.
A dozen short years later, unfunded pension debt has erupted to more than $34 billion, swelling the state’s debt burden and threatening to crowd out other government services like education and public safety.
Funding for pensions fell below 50 percent in 2010 and continues to fall. The Kentucky Employee Retirement System (KERS) has fallen especially low. While it once ran surpluses, the KERS is now only about 30-percent funded — one of the worst funded in the nation. (For a comparative chart of 126 pension systems funding ratios, click here)
Debt apologists will point to poor economic conditions to explain Kentucky’s pensions woes. Obviously, this is part of the problem. As asset values fall, so do funding ratios for state pension plans across the board.
What makes Kentucky exceptional is that it went from being one of the best-funded nationwide to one of the worst in a decade.
If the stock market was the only reason for the pension debt explosion than we would expect Kentucky’s pensions to remain among the best funded. But they are not.
The question we are asking is not “why have unfunded liabilities increased?” but “why have Kentucky’s unfunded liabilities increased so much more than everyone else’s?”
The answer is now obvious thanks to “Future Shock: Kentucky Politicians’ Opulent Pensions Have Become A Modern-Day Gold Rush.”
Poor economic performance is not the only culprit behind Kentucky’s wildfire of unfunded pension debt. Lavish pensions and a generous basket of benefits share the blame.
House Bill 299, which is discussed in the report, illustrates how greedy legislators have voted themselves generous pensions. However, the abuse of the system does not end there. A collection of other perks have been accumulating for years:
* Legislators’ automatic enrollment in the KERS after maxing out their legislative pensions. “Future Shock” also shines the light on politicians whose retirements have doubled or tripled as a result of HB 299.
* State employees’ ability to buy “air time” — years of service not actually worked — to beef up their pension calculations.
* State legislators also receive full health care compensation … and they are better benefits than most of their constituents can afford.
Kentucky’s pension problem is not the result of poor foresight alone. Greedy politicians and benefit-creep are obvious contributors to the problem.