As a New Governor Takes Office, Kentucky Pensions Still on the Brink

Protesting proposed pension reforms, Kentucky teachers descended on the state capital en masse in early 2018.

Protesting proposed pension reforms, Kentucky teachers descended on the state capital en masse in early 2018.

December 10, 2019

In April 2018, thousands of Kentucky teachers descended on the state’s capital to protest looming changes to their pensions: changes championed by the state’s controversial Republican Gov. Matt Bevin. “We’ll remember in November,” they chanted.

In last month’s closely contested governor’s race, they kept their promise, helping to defeat Bevin by a narrow margin.

Taking the stage for his victory speech, Bevin’s opponent, Kentucky Attorney General Andy Beshear — who picked a teacher as his running-mate and won by more than 5,000 votes — thanked teachers directly.

“Your courage to stand up and fight against all the bullying and name-calling helped galvanize our entire state,” he said. “Let me be very clear, to our educators, this is your victory.”

But while Beshear may have won that fight, the battle to save Kentucky’s two largest state pension funds, Kentucky Retirement Systems and Teachers’ Retirement System, continues. The plans, which support tens of thousands of retirees, remain two of the country’s worst-funded. As FRONTLINE reported in The Pension Gamble, KRS hit rock bottom in 2018 after years of underfunding and losing money to bad investments, placement agent fees and a stock market collapse.

Bevin sought to address the problem with deep cuts in state services: healthcare, infrastructure — and education, which helped keep the funds intact, but also fueled the anger of teachers and other public employees. During his campaign, Beshear promised to protect the funds, but it’s not yet clear how exactly he will do so.

Meanwhile, a court case filed by eight public workers who allege out-of-state hedge funds cheated KRS out of $1.5 billion in investments has been dismissed by the state court of appeals, and is now pending before the state Supreme Court.

Today, both pension funds are recovering, but remain at “scary-low” levels, said John Cheves, a reporter for the Lexington Herald-Leader who has covered the funds for nearly two decades. “We’ve been shoveling in more than $1 billion a year into the state pension system out of an $11 billion general fund. That’s a lot of our state’s money. And it’s finally starting to pay off,” he said. “Perhaps, everyone thinks, it has finally hit bottom, and it’s starting a very slow bounce back up towards solvency.”

The same day Bevin conceded the race, KRS trustees announced that their fund had shown a slight uptick for the first time in 20 years, growing from 12.9 to 13.4 percent funded. Then, just a few days later, the state’s auditor announced that TRS — which is still only 58.1 percent funded — had grown by $600 million, from $21.3 to $21.9 billion, over the previous fiscal year.

“They stopped destroying the plan, so now they’re doing what they’re supposed to do,” said investment advisor and former KRS trustee Chris Tobe, author of Kentucky Fried Pensions: A Culture of Cover-Up and Corruption. “That is an improvement, but it’s not exactly anything that we should celebrate. It’s something we should’ve been doing all along.”

In 2018, as Bevin scrambled to come up with a plan for the pension funds, he came under fire for calling teachers “selfish” and “ignorant” on a local radio station. (He later walked those statements back.) “I’m the only governor in the lifetime of any of these teachers that has fully funded the plan and yet they seemingly hate what we’re doing,” he told FRONTLINE.

That same year, Beshear and Bevin squared off around a controversial TRS pension reform bill — which had been nestled within an unrelated sewer bill — that eventually ended up at the state’s Supreme Court. The bill was struck down in December 2018, which was widely regarded as a victory for Beshear.

On the campaign trail, Beshear announced that, if elected, he would move to legalize and tax casinos, sports betting and online poker and redirect those funds to pensions. Before Bevin, two previous governors, including Beshear’s father, two-time former governor Steve Beshear, hadn’t mandated the state to make full annual recommended contributions to the fund, even as it continued to fall behind.

Now, to keep the pensions afloat, the younger Beshear will have to maintain the same commitment to funding the pension plans as Bevin did, as even small cuts to the annual contributions could cause another backslide. “The next few budgets are going to be very painful,” said Cheves.

There’s also the political reality: The KRS board of trustees are four-year-term political appointments, so the new governor won’t have full control of that board until July 2022, which would allow Beshear more control over future investment decisions.

In the meantime, the uncertainty is worsening the crisis for educators, says Louisville teacher Randy Wieck. Even as the state is suffering from a teacher shortage, he said many of his colleagues are considering early retirement in an effort to reclaim more of their pensions in case their fund declares bankruptcy.

“So many teachers are suddenly saying, ‘I’m going to get out now,” said Wieck.

Current electoral realities in the state are also working against the new governor. Republicans hold supermajorities in both houses of the state legislature, which allows them to override Beshear’s veto power.

As the prospect of an economic downturn looms over the country, this existential crisis continues to loom over the funds. “Economists tell us there’s a good chance we’re going to have a recession by the year 2021,” said Cheves. “I don’t want to see what happens with a 13-percent-funded pension fund if the stock market craters.”

Read more: How States Have Tried To Close Their Pension Funding Gaps

Correction: This story has been updated to accurately reflect TRS’s funding level in 2018 and today.

Karen Pinchin

Karen Pinchin, Former Tow Journalism Fellow, FRONTLINE/Columbia Journalism Fellowship, FRONTLINE



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