BRADENTON, Fla. — Kentucky must find a reasonable solution to close the gap on a massive $14 billion unfunded pension liability that is pressuring the state's credit rating, a top state official said.
Lt. Gov. Crit Luallen urged a newly appointed panel at its first meeting Friday to determine the most "fair and equitable path forward" to resolving the crisis that confronts the Kentucky Teachers' Retirement System.
"Recent bond rating warnings in regards to KTRS are further evidence this fiscal crisis has fiscal implications beyond KTRS," Luallen told the 25-member working group. "There will be no easy option."
Standard & Poor's on June 14 downgraded the Kentucky Turnpike Authority's bonds to AA from AA-plus in part because of the lack of "meaningful progress" state lawmakers have made in addressing the teachers' long-term pension liability. The downgrade was accompanied by a change in outlook to negative from stable.
"In Kentucky's case, we view the sustained lack of progress on its pension funding as potentially exerting pressure on all of the state's appropriation-backed debt," said analyst John Sugden.
Two days after the rating downgrade, Gov. Steve Beshear empaneled the work group and ordered a new study into the solvency of the Kentucky Teachers' Retirement System, which has 75,000 active members and 45,000 retirees.
Beshear ordered the group to recommend ways to resolve the funding shortfall and stabilize the pension system.
KTRS has a $14 billion unfunded liability and a 53.6% funded status, according to a 2014 actuarial valuation. The liability is among the worst in the nation, according to some studies.
Pension funding has been studied by Kentucky and prior panels several times in the past, though the solution has remained elusive and controversial.
Even the chairman of the new work group, David Karem, related his reluctance to get involved with the latest effort to resolve the pension issue in his opening remarks on Friday.
Karem said that when Beshear called about being the chairman, he asked the governor, "What have I done to piss you off?"
Karem, a former state senator and chairman of the Kentucky Board of Education, said Beshear ignored his question and offered no agenda for the group. He only asked that recommendations be readied for the next administration, Karem said.
Beshear's final term in office ends this year. A new governor will take office in December.
The KTRS Funding Work Group on Friday began its job hearing from pension fund officials on the status of the fund. The panel was also told that a request for proposals has been issued for a consultant to assist with its studies. The consultant is expected to attend the next meeting on July 31.
Information about KTRS Funding Work Group meetings, studies, and a place for public comments can be found on the governor's website at governor.ky.gov.