KENTUCKY PENSIONS KNOW THE FACTS Kyle Estes HCSD

KENTUCKY PENSIONS – KNOW THE FACTS Kyle Estes, HCSD Superintendent

PENSIONS INDIVIDUAL PENSION PLANS State Non 16% State 59. 7% CERS Non 59. 0% 57. 7% CERS 30. 3% 54. 6% 72. 1% 85. 1%

PENSION UNFUNDED LIABILITY (06/30/16) (STATED IN MILLIONS)

RETIREMENT POINTS • Liability is the Issue of a Long-Standing Process of “Kicking The Can Down the Road” that Spans Multiple Administrations and Both Political Parties • State Leadership appears focused on “Shifting the Risk” to the Employee (i. e. A Corporate America Model) • Deep Concern for The Resulting Public Policy that would be Enacted: Recruitment of Staff • Retention of Staff • Age Issue Created with Staff • Quality of Service Issues Created with Staff • • “Solutions” per PFM Do Not Address the Real, Current Issue of Unfunded Liability and Plan Solvency • Inviolable Contract – Legal Protection for The Promise Made To Public Workers (KRS 61. 692). “Prohibits retirement benefits from being reduced, altered, amended or repealed”.

C E R S – COUNTY EMPLOYEES RET. SYSTEM • Approximately 50% of Public School Employees Are CERS Plan Participants • This Plan includes School Boards; Cities; Counties; Municipals in Kentucky • Employ. EE Contributes 5% of Wages; Employ. ER Contributes 19% of Wages • No State Funding Provided! 100% Employee / 100% Employer Contributions • 59% Funding Ratio Toward Unfunded Liability – Highest Funded Ratio • We Already Have a Tiered Approach Installed (Hybrid Plan) • Also Participate in Social Security (Not Their ONLY Retirement Income)

CERS • CERS is currently a part of KRS (State KERS Plan and State Police Plan) • CERS has 63% of Members in Total KRS Plan • CERS has 73% of Assets in KRS Total Plan • CERS pays for more of the KRS Admin Costs Than Other Plans • Admin Costs are Higher than Comparable Systems (And Increasing) • CERS (until recently) had NO representation on KRS Investment Committee • Representation on Investment Committee is not Proportional

CERS • CERS is Vastly better funded than State Plans (59% vs. 16%/30%) • CERS is ‘Guilty by Association’ with KRS Plans Financial Status • CERS needs 100% Control of Their Plan; Remove Politics from System; Stability in Management; Avoid Unnecessary Benefit Changes • SUPPORT Independence of CERS from State Plans !!!!

TRS – TEACHER RETIREMENT SYSTEM • TRS created to be a Social Security Replacement Plan (exempted from SS) • TRS provides COLA’s that mirror Social Security • COLA’s are pre-funded; not an issue with the Unfunded Liability • 1930’s - Created as it was more secure and less expensive than SS • Movement to SS/401 k would be More Expensive for Taxpayers; SS provides less control whereas TRS allows for Local KY Control of the Plan; Less Benefit for Retirees; Destructive to Public Education • Shared Responsibility Plan is Better Alternative (see health insurance solution)

IS TRS MANAGEMENT PART OF THE PROBLEM? • Quick Answer: “NO” it is Not Part of the Problem • TRS has operated one of the most efficient retirement systems in America • TRS provides one of the best returns on investment as compared with other retirement systems in America • Let’s Prove This with The Facts!

TRS Expenses vs. Other Systems As of June 30, 2015 Percentage of Assets Kentucky Teachers 0. 0556% Kansas Public Employees 0. 0675% New Mexico Public Employees 0. 0693% Georgia Employees 0. 0921% Louisiana Teachers 0. 0797% Ohio Teachers Retirement System 0. 0852% Indiana Public Employees 0. 1644% *Only Ohio also manages health insurance program

Did You Know? Fiscal 2017 preliminary gross investment return 15. 37 percent Among the best returns in the country (Top 7% Nationally) Net Return is 15% after expenses Double-digit percentage gains in 3 of the last 5 years & 5 of the last 8 years

Every $1 of TRS Pension Benefit Returns $1. 43 back to local economies • TRS pays: Retired teachers has significant economic impact in every Kentucky county million in retirement annuity benefits (July 2017) • $24 million in medical benefits (monthly average) • $166 • 89% of TRS retirees live in Kentucky • Retired teachers would make TRS the second- largest employer in many counties • About $1. 8 billion a year paid into Kentucky’s economy because of pension benefits

Number of Retirees by Age at Retirement Fiscal Year 2017: 2, 151 Service Retirements 350 300 Average retirement age 59 250 200 150 100 50 - 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 Number of retirees § Less than 5% retire before age 50 § 4 times as many people retire at age 65 & over than under age 50 § Average career teacher retiring in FY 2017 worked more than 30 years

INVESTMENT PERFORMANCE TRS GROSS RETURNS AS OF JUNE 30, 2017 PRELIMINARY 1 -year 3 -year 5 -year 10 -year Returns 15. 37% 6. 3% 10. 1% 6. 3% Rankings Top 8% Top 11% Top 13 % Top 9% TRS Ranking Compared to Public Pension Plans in the Nation Provided by Aon based on gross returns The compounded gross return for the last 30 years is 8. 1%.

More Did You Know? • 58% of retired teachers received $40, 000 or less in Fiscal Year 2017; No SS income supplement. • 90% of retirees receive $60, 000 or less • Fewer than 1% of retirees (0. 8%) receive more than $100, 000 • TRS replaces Social Security • Retirees receiving between $20, 000 and $40, 000 worked an average of 27 years. • People receiving higher pensions also worked longer Notes: Excludes disability retirement payments.

Additional Funding Summary TRS Requested $1. 03 B 94% Approved $973 M

TRS • PFM Proposes Combining Investments of ALL Pensions • By combining funds under one appointed Board, a relatively small amount of savings would be achieved. • All of our Assets would be in one basket! Very Risky! • Lose Control Over Direct Management of Teachers Retirement Plan • We Currently have a Shortage of Teachers without Losing Pension Benefits • Local Districts make SS Match? – Enormous Cost / Taxation…Why Push the Passage of Required Tax to the Local Level? • Becomes a Question of “WHO” passes the TAX, NOT “IF” Additional Taxes are Levied to Pay for A More Expensive Solution

TRS • Since 2008, Legislature has not funded TRS requested ARC funding totaling $1. 9 Billion • TRS has had to sell investments to meet liquidity needs due to no ARC payments by the State. The compounded amount between no ARC funding; lost returns; and sale of assets is computed to be $3. 8 Billion • This ALONE would have reduced the unfunded liability from $14. 6 Billion to $10. 8 Billion, raising the Funding Ratio from 54% to 66%. • The National Average for Pension Plans is 73%. This Would put US Within Striking Distance of The Avg Benchmark • Social Security has an unfunded liability of $12. 5 Trillion or $38, 000 per household vs. $3, 300 per household of the current TRS unfunded liability. • Social Security option is IRREVERSIBLE once Declared. A Decision to Move Teachers to SS is PERMANENT with the Federal Government.

TRS • SS Cost more (PFM page 16); Doesn’t resolve the current unfunded liability; Bad for Teachers; and is a Irreversible decision (HIGH STAKES MOVE!). • Federal Gov’t Highly Likely will Increase Social Security Tax on both the Employer and Employee in the near future (1. 5% each; 3% total). • The Increased Tax Would Make this Even More Costly Than it Currently is for Teachers and Taxpayers as Opposed to TRS • A Move to Social Security Means We Lose Total Control of the Pension Plan, Permanently. • We Support A Shared Responsibility Plan is THE BEST OPTION to Repair TRS and Sustain This For the LONG-TERM !!!!! State • Employees • Retirees •

Page 16 – PFM Report (Report 3) TRS is 12. 855%