The executive secretary of the Kentucky Teachers' Retirement System says the system is in good shape and legislators in this past session are to thank. He also credited the KTRS Board of Trustees and teacher groups like the Calloway County Retired Teachers Association for their lobbying efforts.
The big news this past legislative session, Gary Harbin said to retired teachers in Murray this week, is full-funding. "What we've got now is our place in the budget. The $500 million a year we need is now there. We're getting that money in and that money is doing really good for you."
"We do have to thank our elected officials for what they did for us this session," said Harbin. "Now we know that there was another bill passed - a sewer bill - I mean, Senate Bill 151 that passed, that is going to change, or could change, the benefits for teachers going forward. And there are some things in that that will have to be fixed to make that work," he said. He predicted the state Supreme Court decision will come out after the election but noted that KTRS has to keep working as though the bill passed because their systems have to be up and going by January 1 if the court upholds the legislation.
If that bill is not upheld, Harbin said, the legislature will have to go back and decide if they want to institute a new plan in the next legislative session. "It becomes politics at that point and I try not to dabble in politics. I try to keep it a little closer to just managing the pension fund."
"We're in really good shape right now. The money has to keep coming in through the budget. And our investment returns have to stay up. But things are as good as they have been - they're better than they have been since I was first associated with the system in 1975," Harbin said.
Last year, at this time, he said, the system had $18 billion in assets. This year, the system has $21 billion. He said investments return at about 10.5%, outperforming other pension plans by about 2.5%. He noted that 2.5% of $18 billion is around $500 million more - because of appropriations provided by the budget this year.
Harbin noted mixed emotion from teachers is due to a perceived lack of respect. But, he said, there is no crisis in teacher pensions: "The funding is there. The funding is real. That's going to shore up the pension plan. If that funding keeps coming in the future and if future legislatures continue with that funding then there is no crisis in teachers pensions," he said.
Harbin said as long as funding comes at the levels provided in the current budget, then there won't be a future crisis with KTRS. He said funding levels will continue to grow, actuarial liabilities will continue to be paid and the system will be 100-percent funded within 30 years.
Looking ahead to the next budget, Harbin said it has to include funding for the over-65 population and a $10 million shortfall. "It has to not take money out of the over-65 trust funds to pay for under 65 health care coverage like they did in this budget. That will devastate the agreement that was struck between the state and teachers and school districts in 2010," he said. "In which active teachers and school districts would contribute money for 65-and-older health care."
Harbin said for the under-65, the bargain was that the member and the state would pay for that collectively.
A funding issue involving $70 million in the next budget is the biggest issue the TRS has left with regard to being able to provide health care benefits to teachers, he said. That amount is the state's portion of shared responsibility to pay for under-65 coverage, he said, and will have to be paid out of the 65-and-over pool for the second year of the biennium.
Harbin said such actions would undermine funding for 65-and-older health care and needs to be stopped. "Those that are getting the benefit under 65 will need that coverage when they get 65 and older, too," he said. The budget has an unusual clause, he said, in that the $70 million would not be funded unless there was a surplus in the budget. He said with the economy going "gangbusters" it doesn't take much to move a $10 billion budget up by $70 million.
Among other topics, Harbin noted a desire across the nation to convert retirement systems to 401(k) plans, which he said is a "bad idea" because it requires individuals, rather than professionals, to manage their money over a long period of time. He estimated people putting money into 401(k) plans would earn 2% less on investments by the time they retire and said pension plans can deliver "a better bang for the buck." Longevity risk is something people with pensions don't need to worry about, he said, that a fear in 401(k) plans is that participant will run out of money before they run out of life. He added that TRS invests as though they are "perpetually 35-years-old."
Harbin noted that 91% of the pension benefits allocated through KTRS stays in Kentucky, adding to the state's economy. "We're one of the largest employers in the state, just as retirees." He said he wanted people to take away from the meeting that the Board of Trustees are "good stewards" of the money put into the system, which he said is a low-cost operation and will continue to be sound so long as funding is provided from employers, as required.