Thursday, September 8, 2016

OP-ED, Wil Schroder: Pension Crisis Must by Addressed With Real Leadership


Sen. Wil Schroder. 
By Wil Schroder 

In early February of 2015, Speaker Greg Stumbo, the leader of the Democrats in the House of Representatives, sat before a House Committee pitching the passage of House Bill 4 (HB 4). This legislation, he claimed, would save the Kentucky Teachers Retirement System (KTRS) by borrowing $3.3 billion and then investing the money in the stock market. Stumbo projected the $3.3 billion could be borrowed at a 4.5 percent interest rate and then invested for a 7.5 percent return.  He encouraged members of the committee not to miss this “window of opportunity” and claimed “you have guaranteed the solvency of the Kentucky Teachers Retirement System.”  House Bill 4 passed out of committee that day with the support of every Democrat member and then passed the full House, again with the support of every Democrat member.

Despite numerous letters, calls, and meetings from teachers urging its passage, I, along with most of the Senate Republican Caucus, knew the math in HB 4 just did not work.  In fact, the 7.5 percent return guaranteed by the House Democrats has proven to be a negative 1.3 percent.  While this is terrible news, it would have been even worse had HB 4 passed.  According to the most recent projections from former Governor Steve Beshear’s Budget Director, had $3.3 billion been borrowed in July 2015, the KTRS would have actually lost $43 million dollars.  This would have been in addition to the $200 million in interest payments required that year and the fees paid to KTRS investment advisors.  The guarantee of KTRS solvency rings hollow now that we know taxpayers and retired teachers would have been the big losers under the House Democrats’ plan.

In contrast, I have been proud to support real pension reform proposals based on proven facts to help solve the looming crisis of unfunded obligations in all of Kentucky’s public pension systems.  An excellent example of this reform was Senate Bill 2 (SB 2) proposed during the 2016 Session.  Senate Bill 2 would have brought enhanced transparency to the KTRS and Kentucky Retirement Systems (KRS) by requiring the disclosure of investment fees and the terms of contracts entered into by the retirement systems.  Recently, the KRS reported its annual investment expenses were running 75 percent higher than reported in previous years, yet little explanation was given behind this steep increase.


Commonsense dictates there should be more transparency in how the public pension systems operate.  When in your everyday life would you ever continue to give money for a service without first understanding how and for what you were being charged?  Yet, despite feigning support for “more light” to be shone on the pension systems, the Democratic leaders in the Kentucky House who control the flow of bills refused to post SB 2 for passage. These same people have even blocked passage of Senate legislation ending the “super-sizing” of legislators’ pensions.

Kentuckians deserve better and we cannot afford any more risky investment plans put forth by House Democrats. The House of Representatives needs bold leadership unafraid to do the right thing.  I stand with my Senate colleagues ready to work with those leaders to solve Kentucky’s public pension crisis.

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