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March 12, 2015 01:00 AM

Kentucky pension obligation bonds in limbo with Legislature divided on bill

Meaghan Offerman
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    Kentucky lawmakers remain divided over a bill to issue $3.3 billion in pension obligation bonds.

    The House on Wednesday refused to concur with the Senate’s changes to the bill, moving the issue to a conference committee of senators and representatives instead. If an agreement is not reached by March 24, the end of the legislative session, the bill will be dead.

    The bill, which passed the House on Feb. 23, met resistance in the Senate where members voted Tuesday to create a task force of legislators to study the funding level and benefits provided by the $18.1 billion Kentucky Teachers’ Retirement System in lieu of a bond issuance.

    The House bill, which also calls for phasing into the full actuarial required contribution rate, would improve the Frankfort-based pension plan’s funding levels to 68% by fiscal year 2026 and 72.4% by 2035 up from its current level of 53.6%, said a news release from the office of state Rep. Greg Stumbo, sponsor of the bill, following the bill’s passage by the House.

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

    “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 said.

    Beau Barnes, the pension fund’s general counsel and deputy executive secretary, said the pension fund is “not crazy” about issuing bonds either; however, the pension fund has been operating on a negative cash flow basis since 2008 and “definitely needs some additional funding.”

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