Ensure Public Employee Benefits Are Sustainable

The Kentucky General Assembly made significant changes in the 2013 session to address more than $36 billion in unfunded liabilities in the state’s pension system and created a hybrid pension plan for new employees that is more reflective of the private sector. The reforms did not address any of the management or investment practices of any of Kentucky’s public employee pension systems. Major work remains before policymakers and taxpayers can rest assured the problem is addressed.

In addition, the Kentucky Teachers’ Retirement System was not included in the 2013 reforms that applied to retirement systems covering state and local employees, and it also has significant unfunded liabilities. The 2015 financial statements for KTRS (released in December 2015) indicated the system had a funding level of 55.3% as of June 30, 2015, with $13.9 billion in unfunded liabilities. A key reason for this underfunding is the fact that actual employer contributions to KTRS in recent years have been significantly less than the full amount required to meet the system’s financial obligations, with only 61% of the required employer contribution made in 2015.

The recently enacted 2016-2018 state budget made a significant investment in state pension systems by providing an additional $1.1 billion in new funding over the biennium.

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