Credit rating agency sees pension reforms as positive for state, more work to be done

By Jacqueline Pitts, The Bottom Line

After Gov. Matt Bevin signed pension reform legislation this week, one of the nation’s top rating agencies released a “credit positive” report on Senate Bill 151 but cautioned the state’s billions in unfunded pension liability is still an issue.

The report by Moody’s Investor Services states that the pension reforms contained in Senate Bill 151, including moving future hires in the Kentucky Teachers’ Retirement System (KTRS) into a hybrid cash-balance plan as opposed to a defined contribution pension plan and moves toward a more level repayment for the state’s unfunded pension liabilities, will help move Kentucky forward.

The report notes that while the projected impact of the change is not yet available from plan actuaries, Moody’s expects the new hybrid plan to slow the accrual of defined benefit liabilities going forward.

While much of the report from Moody’s is about the positive changes the legislation will allow for Kentucky’s future in dealing with the underfunded pension systems, the credit rating agency also notes the larger amount of funds that are having to be put into the systems in the coming years which is crowding out many other government services.

“Addressing the sizeable unfunded TRS liability will increasingly contribute to serious budget challenges for the state’s universities, both through higher pension contributions and reductions to state appropriations. Though the pension reforms favorably close the gap on unfunded liabilities, participating universities will continue to grapple with rising pension contributions that are consuming a larger share of already stressed operations and revenue collections,” a release about the report states.

Moody’s also notes Senate Bill 151 does not address the rising costs to local governments as a result of the pension liabilities of the state. The legislature passed a separate bill to give relief to those entities which has been vetoed by the governor. The General Assembly will have the ability to override that veto if they choose during the last two days of session this week.

Read the full Moody’s report on Senate Bill 151 here.

See a chart showing the decreasing unfunded liability of the Kentucky Teachers’ Retirement System over time below: