Bevin Bashes Teachers

Kentucky Governor Matt Bevin is again bashing teachers and the largest association representing them, the KEA, instead of taking responsibility for his own failures as Governor.

Here’s more from the Courier-Journal:

Bevin said on WKCT Radio, of Bowling Green, that his budget proposals have fully funded Kentucky’s pension systems but that his efforts to save the pensions have been muddled by the teachers’ union.

And a response from KEA:

“It’s true that the last two state budgets approved by the legislature funded the pension system.  But remember, the Governor vetoed the 2018-2020 budget, which included the pension funding appropriations for which he’s now taking credit. The provisions of his ironically titled “Keeping the Promise” proposal from last fall and SB1(2018) speak for themselves; KEA didn’t create those documents, the Governor and legislators sympathetic to his cause did. Those proposals created the “discord” to which he refers.  All state employees, including educators, are also taxpayers.  Every participant in any of Kentucky’s public pension systems pays twice: once as a direct, personal mandatory contribution to their individual account and again as a taxpayer …  So yes, KEA and other advocacy groups believe state employees and public school educator voices should be heard on policy issues that will affect the pension benefits they earn and pay for.”

The fact that Kentucky teachers and other public employees consistently pay into a system as both employees and taxpayers seems lost on Bevin. That those who pay into the system and are promised a return would want to have a say in any changes clearly is an affront to the paternalistic Bevin who seems to want to say, “Don’t worry, I’ll manage it… ”

Fortunately, educators and others are speaking up and speaking out. Most everyone agrees the pension system needs an element of reform — and that reform should be carried out in a transparent manner that is fair to all parties to the system.

MORE on the pension situation.

For more on education politics and policy in Kentucky, follow @KYEdReport


 

Strip Mining Kentucky Pensions

Fascinating tale of what’s going on behind the scenes with Kentucky’s pensions. Here are a few excerpts:

In April 2008, a longtime investment adviser named Chris Tobe was appointed to the board of trustees that oversees the Kentucky Retirement Systems, the pension fund that provides for the state’s firefighters, police, and other government employees. Within a year, his fellow trustees named Tobe to the six-person committee that oversees its investments, becoming the only member of the committee with any actual investment experience. It was an experiment in fiduciary responsibility that ended badly. “I started asking questions when things weren’t sounding right,” Tobe said. “And a secret session was held where they voted to kick me off.”

Several weeks after he was removed, the remaining members of the committee approved a $200 million investment in a hedge fund called Arrowhawk Capital Partners. Tobe, though he remained a trustee, only learned about the deal after the fact, while reading the magazine Pensions & Investments.

The Middle Man

Tobe had never heard of Arrowhawk, and he quickly figured out why: Arrowhawk was a new fund whose first investor was the Kentucky Retirement Systems, or KRS. During his tenure as a trustee, KRS staff had proposed moving 5 percent — roughly $650 million — of the pension’s total holdings, then invested almost entirely in a mix of stocks and bonds, into large, established “funds of funds” — vehicles that allow investors to buy a basket of hedge funds, rather than risking everything on a single fund. Instead, the staff had steered the investment committee in 2009 to a startup fund with no track record. Tobe pressed the issue at several public meetings of the KRS board and eventually, in 2010, an internal audit revealed that Arrowhawk paid more than $2 million to a middle man named Glen Sergeon to land Kentucky as a client. KRS’s chief investment officer resigned during the course of the investigation (only to land a private-sector job as a managing director at a giant investment consulting firm). “Bad publicity, along with mediocre performance, sealed the fate of Arrowhawk,” Tobe wrote in his self-published book, “Kentucky Fried Pensions.” Two and a half years after Kentucky selected the firm for its first-ever hedge fund investment, Arrowhawk shut its doors.

Big Fees

Yet Kentucky’s heavy reliance on alternatives has come at a steep cost. Hedge funds and private equity typically charge “2 and 20” – 2 percent of every dollar invested, plus a 20 percent share of any profits. That works out to fees roughly 10 times what a pension fund would pay to invest in a plain vanilla stock fund. In 2009, the year it began investing in hedge funds, KRS paid $13.6 million in annual management fees. Five years later, that figure had ballooned to $126 million, according to a study KRS itself commissioned — more than twice as much as it had publicly disclosed in its 2014 filings. And that higher figure still didn’t capture all the millions of dollars in those 20 percent “performance fees” that hedge funds and private equity collect — sometimes many years into the future, after the sale of a successful venture — before distributing profits to investors. That same study underscored a second cost: Kentucky’s gamble on alternatives has proven a lousy investment. Had KRS simply matched the performance of the median pension fund in the five years ending in December 2014, the pension would have produced an additional $1.75 billion in earnings. If it had invested in a basic index fund matching the Russell 1000 (the country’s 1,000 largest public companies), KRS would have earned another $9 billion. Even investing the entire pension fund in a long-term bond fund — as safe an investment as there is, short of leaving it all in cash — would have meant hundreds of millions of dollars in additional profits during those five years.

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It’s a damning story of gross mismanagement. Combine that with a General Assembly that didn’t regularly meet obligations, and it’s not difficult to see why there’s a crisis of sorts now.

Here’s what else is clear: The teachers and public employees who paid (and still pay) into this system are not at fault. They didn’t make these decisions and they did meet their obligations.

Sorting out a path forward should be done out in the open with the transparency that has been lacking in the pension system for far too long.

 

For more on education politics and policy in Kentucky, follow @KyEdReport


 

Charters, Pensions, and Funding

Those are the Big 3 issues identified by Commissioner Terry Holliday for the 2015 legislative session.

Holliday outlined his thoughts on the 2015 session in a December post on his blog.

He notes that if charters are adopted at all, it will likely be a small pilot program that would allow for a handful of charters in districts with especially troubling achievement gaps (likely JCPS).

The Prichard Committee has been reviewing the research on charters and will likely weigh-in at some point, too.

Teacher pension reform has been and will continue to be a hot legislative topic.

Essentially, the Kentucky General Assembly balanced the state budget for years in part by under-funding the Kentucky Teacher Retirement System.

Now, their negligence has caught up with them and teachers may see benefit changes or reductions in future payments by way of adjusted (down) cost-0f-living increases.

Holliday also says that while the session is not a budget session, some funding issues may surface.

Another potential topic of interest is allowing school systems to merge in order to maximize financial efficiency.

Tune in this session for more on the big education issues facing Kentucky policymakers.

For more on education policy and politics in Kentucky, follow @KYEdReport

 

Pension Reform in 2015?

Kentucky legislators will consider a number of plans designed to reform the state’s pension plan for teachers, the Courier-Journal reports.

The Kentucky General Assembly has been tinkering with the pension plan in recent years in an attempt to shore up unfunded liabilities.

Proposals this year would seek to adjust future benefit payments and decrease cost-of-living increases.

The shortfall is a result of lack of proper funding over time by the General Assembly.

Some proposals would continue the practice of using borrowing through bonds to fund pension obligations, but it is likely that changes to benefits will also be required.

According to the report, a number of lawmakers oppose additional bonds to fund the system and are looking at more significant reform.

From the story:

So far, legislators have pre-filed at least four bills that would alter some aspect of teacher pensions, and leaders from both the House and Senate say any bonding needs to be paired with reforms.

“There is not a lot of enthusiasm for borrowing more money to pay off the KTRS debt without structural changes accompanying that effort,” said Senate Majority Leader Damon Thayer, R-Georgetown.

 

For more on education politics and policy in Kentucky, follow @KYEdReport

Jeff Hoover on Teacher Pensions

House Republican Floor Leader Jeff Hoover attempts to use teacher pension reform as an argument in favor of electing a GOP majority to the Kentucky House.

In an article for the Courier-Journal, he points out:

The Comprehensive Annual Financial Report issued by KTRS this past December shows the system had approximately 75,000 active and 47,000 retired members. The report states the funding level this past year was 51.9 percent, with $13.85 billion in unfunded liabilities. According to data released by the Kentucky Chamber of Commerce this past week, a key reason for this underfunding is actual employer contributions to the system have been significantly less than the amount required to sustain financial obligations.

Hoover is right to note that the teacher pension system may soon face problems. Not being able to pay benefits promised and owed would be devastating.

And, in his article, he’s simply calling for the creation of a task force to examine the issue and make recommendations.

That, too, seems reasonable.

Fixing the pension problem won’t be easy and it will take political courage.

But, let’s be clear: Teachers are not the ones who failed to properly fund the pension system for years and years. Teachers did not make promises they couldn’t meet. Teachers should not bear the brunt of any proposed pension reform. The budget in Kentucky should not be balanced on the backs of Kentucky’s teachers.

Comprehensive reform that ensures the teacher pension fund is able to meet future obligations must include proper funding of those obligations. That will mean that new revenue must go to the fund OR that other programs are cut to make room in the budget for teacher pensions.

Kentucky made a promise to its teachers. Kentucky’s political leadership should keep that promise.

For more on Kentucky education politics and policy, follow @KYEdReport

 

 

The Pension Petition

The Jefferson County Teachers Association is out with a Change.org petition calling on Governor Beshear and the Kentucky General Assembly to fully fund the pension fund (which they haven’t done since 2008).

As of this posting, they already have over 9000 signatures.

No doubt, many teachers and their families will be joining the fight soon.

For more on Kentucky education politics and policy, follow us @KYEdReport