(Bloomberg) — Kentucky’s retired state workers’ pension fund is a mess. It’s the most underfunded of any in the country, and it’s sinking dangerously close to running out of money.
Yet state lawmakers, the men and women responsible for budgeting those pensions, don’t have quite the same worry about their own money.
While Kentucky Legislators’ Retirement Plan doesn’t have enough money to cover 100 percent of present and future payouts — few pension plans in the country do — it has 62 percent, eclipsing the 21 percent of the $2.3 billion Kentucky Employees Retirement System, according to state records. Assets in the workers’ plan could shrink even more, pension officials said.
“There’s a lot of frustration over the funding of the two systems, because the legislators are doing fine,” said Jim Carroll, co-founder of Kentucky Government Retirees, a group of 5,465 former state workers urging lawmakers to undo a decade of short-changing. “We could run out of money, and if we do, there are going to be pitchforks and torches on the Capitol lawn.”
Kentucky, whose legislators are in session 90 days every two years, is one of 41 states that provide lawmakers with pensions. While many have reduced or limited the benefit, and others such as California have taken it away for new lawmakers, about a half-dozen, including Kentucky, Georgia, Michigan and Mississippi, have better-funded plans than their state workers.
“They shouldn’t even have a taxpayer-funded pension for what’s constitutionally a part-time job,” said Jim Walters, president of the Bluegrass Institute for Public Policy Solutions, which advocates for free markets in Lexington, Kentucky.
Lawmakers continue to fund their own plans at a time when the companies that rate municipal debt are taking a hard look at the pressures of pension costs. Standard & Poor’s cut the rating on economic development road bonds on June 14, citing in part lawmakers’ failure to “make meaningful progress” in addressing its pension liability.
“We believe Kentucky’s the next state poised for a downgrade,” said Paul Nolan, head of municipal research at Asset Preservation Advisors in Atlanta, which manages about $2 billion.
Kentucky debt has earned 0.4 percent this year, compared with a 0.1 percent loss for the entire municipal market, Barclays Plc data show. The state gets strong credit ratings from both Moody’s Investors Service, which graded it Aa2, the third-highest score, and Standard & Poor’s, which ranked it one step lower at AA-.
Kentucky’s lawmakers fully funded a retirement plan for themselves in all but four of the last 35 years. The public-worker pension plan got a fraction of its required contribution from the state in 15 of the past 22 years.