Date: 10-23-2018

‘Frontline’: Kentucky’s pension crisis caused by underfunding, risky investments

FRANKFORT, Ky. — The award-winning PBS investigative documentary series “Frontline” takes an in-depth look at the causes and impact of Kentucky’s pension crisis in a report that will air at 10 p.m. EDT Tuesday on KET.

The program is titled “The Pension Gamble. How state governments and Wall Street led America’s public pensions into a $4 trillion hole.”

The documentary examines the national public pension problem by looking at how Kentucky’s pension plans — fully funded in 2000 — eroded to become among the most underfunded in the nation, according to a news release from “Frontline.”

“A series of Kentucky politicians, reluctant to raise taxes, began to divert pension savings to pay their bills and fund other projects,” the press release says.

Beyond the repeated underfunding of pensions for years prior to 2014, the documentary explores the move by Kentucky pension plans into riskier investments after the Great Recession caused investment income to plunge.

“Kentucky’s public pensions decided that in order to dig out from under, they would invest in some of Wall Street’s more exotic and risky investment vehicles, like hedge funds. Wall Street … was more than happy to answer the call,” the news release says.

Eight current and former Kentucky public employees filed a lawsuit in Franklin Circuit Court last December charging that certain Wall Street firms lured Kentucky Retirement Systems into making $1.2 billion in risky hedge fund investments that went sour and contributed to the crisis. The firms named in that lawsuit have denied the allegations and the case is pending.

The documentary also examines the threat posed by the crisis for police, firefighters, teachers and other state and local government workers — many of whom say they took public service jobs with modest pay because of the security offered by a pension.

“Many of us teachers are working paycheck to paycheck, trying to make ends meet,” public school teacher Christina Frederick-Trosper says in the new release. “I have no savings. So, my pension is everything. Without that, I won’t survive.”

How bad is the pension debt?

Kentucky’s eight public pension plans combined report unfunded liabilities of $37.5 billion, plus another $6.2 billion within health insurance plans as of June 30, 2017. Those numbers will be updated for 2018 later this year.

Gov. Matt Bevin has argued those numbers significantly underestimate the size of Kentucky’s pension debt. 

Where does the pension reform law stand? 

A law passed by the 2018 General Assembly intended to ease the crisis would, among other things, put new teachers in a cash balance savings plan similar to a 401(k) plan rather than the traditional pension plan with defined benefits.

That law was struck down by Franklin Circuit Court in a ruling that said the one-day process in which it was passed violated a part of the Kentucky Constitution intended to assure lawmakers and the public have time to read a bill before it is voted into law. That ruling has been appealed to the Kentucky Supreme Court, which is expected to issue a final ruling before the end of the year.

How to watch ‘The Pension Gamble’ on ‘Frontline’

What: “The Pension Gamble. How state governments and Wall Street led America’s public pensions into a $4 trillion hole.”

When: 10 p.m. EDT Tuesday on KET 

By Tom Loftus
Louisville Courier Journal