A July 2015 report by the Pew Charitable Trusts compared state pension funding levels for all 50 states. (The Public Sector Retirement Systems Project at Pew annually tracks state pension funding and has advised the Kentucky General Assembly on pension reform.) Kentucky ranked 49 out of 50 states—only Illinois ranked lower. The report found the national average state pension funding level to be 71.8%. Kentucky’s combined funding level for all its systems was only 44.2%.
To put this in a different perspective: Kentucky’s total unfunded pension liability of $36.4 billion in FY 2015 was more than three and a half times the total General Fund tax revenue the state collected in that entire year.
Considered another way, the $36.4 billion in 2015 pension debt amounted to $8,268 for every man, woman and child in the Commonwealth. And it was equal to 19.3% of Kentucky’s entire gross domestic product (all state economic activity) in 2014. Clearly, this level of debt is not sustainable in a state with a 46th-place ranking in income and 18 percent of its population living below the poverty level.
And while the condition of the state’s different pension plans varies somewhat, those covering both state employees and teachers are projected either to have insufficient assets to pay promised benefits or to be forced into an all-cash basis to pay benefits due to the depletion of investment assets.
To provide full funding for the retirement systems in the next fiscal year will require more than $580 million on top of the $990.3 million in state funds currently appropriated for pensions in the FY 2016 budget, according to the Office of State Budget Director.