The 2015 Kentucky General Assembly, which starts Jan. 6, will be asked to devote billions of dollars in additional debt and spending to shore up the struggling pension funds that cover state workers and school teachers.
But critics say the tax-subsidized pension systems need to be more transparent before the state delivers another truckload of cash. State law lets the systems operate partly in secret, withholding information such as the sums that individual retirees collect and the fees paid to individual hedge fund managers and other outside investment advisers. Last year alone, Kentucky Retirement Systems paid $55 million to investment management firms.
“For taxpayers, it’s like you’re throwing dollars into a black hole,” said Chris Tobe, a Louisville financial consultant who sat on the KRS Board of Trustees from 2008 to 2012. “Why would anyone want to sink any more money into a system when they don’t really know what’s going on in there?”
The primary pension fund at KRS for state workers in non-hazardous jobs, the Kentucky Employees Retirement System, has only 21 percent of the money it’s expected to need for future liabilities. The Kentucky Teachers’ Retirement System has 52 percent of what it needs. For years, the state failed to put in the required amounts while workers and teachers made their contributions. Now the funds are short by billions of dollars.
Lawsuits filed this year by the city of Fort Wright, which has employees enrolled in KRS, and Louisville school teacher Randolph Wieck have demanded greater financial disclosure from the pension systems. Two lawmakers have pre-filed bills that would peel back the lid, at least a bit.
Rep. Jim Wayne, D-Louisville, wants the pension systems to use the state’s competitive bidding process to solicit investment proposals, rather than award the lucrative deals privately. Terms of each deal, including the management fees, would be made public. Wayne also would ban payments to third-party “placement agents,” middlemen who help private investment firms sell their products to pension funds.
“The status quo works for the special interests on Wall Street because it hides what they’re making off our pension system,” Wayne said.
Sen. Chris McDaniel, R-Taylor Mill, wants full disclosure of placement agent fees. He also wants the public to see how much money individual members of the General Assembly expect to collect through pensions or how much they do collect if they are retired. Kentucky’s part-time lawmakers not only have awarded themselves state pensions, but they also carefully keep them in a separate system, apart from KRS, that is 62 percent funded.
Last winter, several bills along these lines were ignored by House and Senate leaders, including one that would have required public disclosure of all state retirees’ pensions. This time, McDaniel said, he has narrowed the focus to his fellow lawmakers.
“I’ve told people, 95 percent of state workers don’t receive a very big pension when they retire. But there are a handful of pension abuses, and it would be useful for us to understand how it works. So at the very least, the legislature can lead from the front and require transparency for its own pensions,” McDaniel said.
Many states, including New York, Illinois and Florida, disclose their pension payouts for individual public employees. New Jersey goes so far as to post its retirees’ names and pensions on a searchable website.
Such information has led to front-page headlines and indictments in some cases. In New York, for example, The New York Times and the state attorney general investigated abuses of public pensions by police officers manipulating rules on overtime and outside pay to boost their benefits. One officer retired at age 44 on a $74,000 salary, then started to collect a $101,333-a-year pension.
However, previous pension transparency bills have run into a wall of opposition in the Kentucky legislature, and they seem likely to again. House State Government Committee Chairman Brent Yonts, D-Greenville, said he’s not inclined to consider Wayne’s or McDaniel’s bills this winter.
“I’m reluctant to support a can-opener approach to the pension system without knowing the consequences of that and without knowing why it’s currently done this way,” Yonts said.
Outside investment managers might not want to accept KRS’ and KTRS’ money if they know their fees will be publicly disclosed, Yonts said. And nobody who gets a state pension should have to share that information with the public, he said.
“Frankly, I don’t think that’s the public’s business,” Yonts said. “They have access to the public payroll and salary information. They can theorize about what we’re going to collect in pensions. But the public is not entitled to know every last little thing about us.”
John Cheves: (859) 231-3266. Twitter: @BGPolitics. Blog: bluegrasspolitics.bloginky.com