Kentucky teacher's pension liabilities skyrocket under new rules
By Edward Krudy
NEW YORK (Reuters) - The unfunded liability at Kentucky's troubled public pension fund for teachers leapt by more than $10 billion last fiscal year under new accounting rules intended to provide a more realistic picture of the worst funded public pension plans.
Kentucky Teachers Retirement System's (KTRS) unfunded liability jumped to $24.43 billion in the fiscal year ended June 30, 2015, using new accounting rules known as GASB 67, compared to $14.01 billion in the prior year, a meeting of board members was told on Wednesday.
Under the rules Kentucky had to use a discount rate of 4.88 percent to calculate the net present value of its liabilities, compared to the 7.5 percent it would have used normally, said Beau Barnes, an executive and general counsel for the fund.
The unfunded liability of $14.01 billion in the 2014 fiscal year was calculated using the higher discount rate. Using the lower rate it would have been $21.59 billion.
News of the situation at the fund comes just days after Reuters reported that two of Kentucky's pension funds for state employees would start exiting illiquid private equity investments as their funding status worsened.
Lawmakers have consistently failed to make required payments into the teachers' fund, which is supposed to provide retirement security to over 122,000 state teachers.
"We are in a crisis," Gary Harbin, KTRS executive secretary, was quoted as saying in the Lexington Herald Leader newspaper. "It's a crisis for the teachers in the classroom today."
An unfunded liability of more than $24 billion in the teachers' fund alone is a staggering burden on a state with an annual budget of around $10 billion.
The sharp increase in the unfunded liability led to a decline in the system's funded ratio to 42.5 percent from 45.6 percent, meaning the fund only has 42.5 cents for every dollar of pension benefits it owes to members.
The appropriate discount rate to use when calculating public pension fund liabilities is hotly contested. Most funds use a rate of 7 percent to 8 percent. Some economists say that is far too high and should be closer to prevailing long-term interest rates.
Using the 7.5 percent discount rate the system's funded ratio increased to 55.3 percent from 53.6 percent in the prior year, Barnes said, and the unfunded liability actually fell slightly to $13.90 billion.
(Reporting by Edward Krudy; Editing by Tom Brown)
