The Kentucky Teachers’ Retirement System could argue it wasn’t a high priority for some legislators during the 2015 legislative session when it came to funding solutions, but it can now celebrate having one of the highest performing pension plans in the nation.
The words “good news” and “state pensions” usually don’t belong in the same sentence, but KTRS announced at its quarterly meeting in June that its pension portfolio investments earned a 8.6 percent return placing it in the top 10 percent pension plans across the U.S.
With more than $1 billion in assets, the investment portfolio has performed in the top 8 percent for three years and in the top 13 percent for the last five.
Sen. Jimmy Higdon, R-Lebanon, requested last week at a Legislative Research Commission meeting that legislators make the under-funded plan a priority for the 2016 session.
After a bill passed the House for a $3.3 billion bond proposal, the bill stalled in a free committee between House and Senate members with a late night offering of $50 million and a study to be done of the pension plan.
Beau Barnes, KTRS deputy executive secretary of operations and general counsel, said KTRS will sell almost $600 million in assets to make payroll this year and the $3.3 billion bond would still be a ballpark amount of cash to infuse in the system.
“Coming out of a 13-year flat investment bubble contributed to the situation,” Barnes said. “We can’t invest our way out of it. We were 53.6 percent funded June 30, 2014 and we have half the assets we need to pay for all the benefits. Those investments historically are paid with investment income.”
Barnes said having the $3.3 billion infusion would give the pension plan the liquidity or cash it needs if markets did take another downturn.
“If even there were anomalies in the market they historically always return to mean,” Barnes said. “Without the cash flow we would be exposed. It’s one thing to be selling assets this year, but when you are selling assets when prices are going down you can’t recover from that.”
Having a negative cash flow is affecting the plan’s long-term investment strategy, Barnes said, as they can’t make long-term investments that KTRS otherwise would.
Proud of performance
KTRS Executive Secretary Gary Harbin said he is proud of the portfolio’s investment performance.
“The board of trustees and staff take great pride in working for teachers. That translates into KTRS having some of the best investment performance at some of the lowest costs in the country,” Harbin said.
“The teachers’ fund performance was strong in terms of total return and performing better than its market benchmark.”
The KTRS manages pension and health insurance benefits for more than 140,000 active and retired teachers and beneficiaries with about $2 billion in benefit payments to retirees annually.
By Brad Bowman
The State Journal