FRANKFORT – With bipartisan support, the Kentucky House of Representatives voted 62-31 this evening for House Speaker Greg Stumbo’s plan to help the Kentucky Teachers’ Retirement System significantly reduce its long-term liability.
“We have a narrow window of opportunity to put this retirement system back on much stronger footing financially,” Speaker Stumbo said. “Under House Bill 4, we can take advantage of historically low interest rates and the KTRS’ much-higher rates of return with its investments. This approach will help us better insure the system’s viability for years to come, which is what our teachers and their retirees deserve.”
HB 4 is based on a proposal that KTRS unveiled late last year to legislators. In short, it calls for the state to issue $3.3 billion in bonds for the system, which has seen significant investment gains over the years. Its most recent one-year return rate topped 18 percent; it’s five-year return was nearly 14 percent, and it’s 20-year return was 8.2 percent. Those figures, Speaker Stumbo noted, are well above KTRS’ recent bond rates, which ranged from 2.39 percent to 4.75 percent.
“I’m normally not in favor of pension bonds, but the evidence is compelling that KTRS can more than clear the bar in this case,” Speaker Stumbo said. “National research indicates that past pension bonds by other states have performed well in most cases. I believe that will be the case this time as well.”
According to KTRS, the bond would take its funding levels from 53.6 percent to 68 percent by the 2026 fiscal year and 72.4 percent in 2035. If the state does nothing, it will see its annual requests for additional money – on top of the hundreds of millions of dollars it already provides each year – rise from nearly $500 million extra a year now to more than $800 million in a decade and $2.3 billion extra in 20 years.
“The fact is, the liability is on the books and we have to find a way to pay for it,” Speaker Stumbo said. “This is a sensible way to do it without putting a crushing burden on future budgets, and it will give the General Assembly time to ramp up its own payments to the system. We can either pay this now or pay a far steeper price down the road. Those who oppose this need to tell teachers what plan they have to bring the liability down.”