Kentucky House passes bill to issue $3.3 billion in pension obligation bonds

The Kentucky House of Representatives passed a bill to issue $3.3 billion in pension obligation bonds in fiscal year 2015-2016 to improve the funding of the Kentucky Teachers’ Retirement System.

The bill, which also calls for phasing into the full actuarial required contribution rate, passed Monday by a 62-31 vote. The bill will now move to the Senate.

“We have a narrow window of opportunity to put this retirement system back on much stronger footing financially,” said state Rep. Greg Stumbo, the bill’s sponsor, in a news release. “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 ensure the system’s viability for years to come, which is what our teachers and their retirees deserve.”

Mr. Stumbo added while he is “normally not in favor of pension bonds,” he believes the bond issuance will perform well in this case.

Under HB4, the Frankfort-based retirement system’s funding levels would improve to 68% by fiscal year 2026 and 72.4% by 2035 up from its current level of 53.6%, the news release said.

The bill would also reduce the amount the state is asked to contribute to KTRS over the long term.

“If the state does nothing, it will see its annual requests for additional money — on top of the 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 release said.

Beau Barnes, general counsel and deputy executive secretary at the $18.1 billion pension fund, could not immediately be reached for comment.