Teachers want Retirement Fund Debt Paid Off

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[Best Syndication News] The state has been writing IOUs to the teachers’ pension fund for the past six years to cover retirees’ health insurance costs, and officials are increasingly worried that it won’t ever be able to pay up. So the Kentucky Teachers’ Retirement System has launched a push to get the state to pay off its $521 million debt to the roughly $15 billion system and find a sustainable way to pay for retired teachers’ health insurance in the future.

“I’m suggesting that we put a plan in place this session … and it’s one that can be stuck to,” KTRS Executive Director Gary Harbin said. “As soon as the economy turns around there’s going to be a thousand worthwhile projects out there, but they’ve got this obligation to teachers … that needs to be met first.”

Since fiscal 2005, the legislature has been redirecting millions of dollars each year from the teachers’ pension fund to the retirees’ medical insurance fund, with a promise of repaying the money at a 7.5 percent interest rate.


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In the first year, the amount borrowed was just $29 million. It wasn’t considered a big deal because the pension fund was still close to being fully funded.

But with rising health care costs, the amount being borrowed from the pension fund to pay for retirees’ health insurance soared to $139 million last fiscal year and $134 million this year. And now the pension fund has less than 68 percent of the assets it needs to pay benefits to nearly 134,000 current and retired teachers.

The millions of dollars of debt that’s piling up has retirement officials nervous that the state won’t ever be able to dig itself out of the hole. An actuary has predicted that the pension fund will be out of cash by 2029 if this funding scenario continues.

Retirement officials also note that every dollar the legislature isn’t putting into the pension fund is a dollar that isn’t being invested.

Many in the legislature argue that teachers shouldn’t be worried because the state is legally obligated to pay pension benefits. In addition, the state has promised to repay the money at 7.5 percent interest — a better rate than some KTRS investments have generated in recent times.“The way I understand the system is that the teachers’ retirement system is being paid back by the state,” said Rep. Mike Cherry, D-Princeton, chairman of the House State Government Committee. “As long as the state keeps doing that it’s not a particularly bad situation for the teachers’ (pension) fund.”KTRS officials say improved investment strategies would likely bring a greater return if the money could be invested now.

And paying 7.5 percent interest on hundreds of millions of borrowed dollars isn’t exactly a sound deal for Kentucky taxpayers — a fact Cherry and others acknowledge.

“Its’ not an ideal situation, but right now it’s the best that the General Assembly has been able to come up with,” said Sen. Damon Thayer, R-Georgetown, Cherry’s counterpart in the Senate.

KTRS officials hope to get some of the stakeholders, such as retired teachers, current teachers and school administrators, to agree on a solution.

KTRS signed a one-year contract with Peritus, a Louisville-based public relations firm, for $120,000 to explain the problem to the various groups and push them to reach a consensus.

Harbin said KTRS isn’t advocating a particular solution, just that one be found.

“For us as administrators of the system it doesn’t matter where the funding comes from, we just know that it needs to come otherwise these problems are going to arise,” Harbin said.

Currently, active teachers and the state each contribute 0.75 percent of payroll for retiree health care, amounting to about $48 million a year.

Those contributions don’t come close to covering the benefits, which cost more than $180 million this fiscal year.

Individual retirees over age 65 kick in $1,157 a year, which amounts to about $21 million.

Another $28 million is generated from investments and other sources, but the bulk of the funding is redirected from the pension fund.

Retirees under 65 and local school districts contribute nothing.

The state could stop providing retired teachers with health care altogether because it isn’t legally obligated to do so. But legislators and others acknowledge it isn’t likely the General Assembly would have the political will to make that cut.There’s no doubt it’s a significant cost driver, but I doubt there’d be a willingness to make an overall change at this time,” Thayer said.Finding the money to keep the benefit alive is the challenge.

The state is facing a bleak budget situation and is expected to have trouble paying for benefits it does guarantee to retirees.

Current teachers, who received only 1 percent raises each of the past two years, would likely object to steep increases in their required contributions. Already, teachers contribute 10 percent of their pay toward retirement benefits because they do not pay into Social Security.

Retired teachers say they are on limited, fixed incomes and that the state should keep its promise to provide benefits at little or no cost to them.

“Teachers like myself we worked long and hard for many years for little to nothing,” said Cebert Gilbert Jr., president of the Kentucky Retired Teachers Association. “We get in our older, latter years and they want to come up with some plan to make us pay for insurance and we just can’t do that.”

They also argue that some 14,000 teachers who are eligible to retire in the next six to eight years would keep teaching if they were told they would have to contribute to their health care benefits as retirees before they turn 65.

And that, they argue, depriving the state and local school districts of significant savings that would be derived from hiring younger workers.

School districts, many of which are struggling in the economic recession, also aren’t keen on contributing toward retiree health care.

“Some districts might be able to afford this; some districts clearly could not,” said Brad Hughes, spokesman for the Kentucky School Boards Association.

Some have suggested that the most palatable solution is for all parties to share the increased health care costs.

“If you try to put it on any one of those stakeholders, it’s probably way too much for any one of the groups to handle,” said Brent McKim, president of the Jefferson County Teachers Association.

By: Chris Walker

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