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Governor Steve Beshear's Communications Office
Gov. Beshear announces refinancing of bonds to protect retired school teachers’ health care benefits
Sale will save the state more than $87.7 million over next 10 years
FRANKFORT, Ky.-- Gov. Steve Beshear today announced that the Kentucky Asset/Liability Commission (ALCo) has sold $468 million in taxable notes this week to refinance obligations that will help protect health care benefits for Kentucky’s retired teachers. The bond sale will refinance loans the state obtained beginning in 2005 from the Kentucky Teacher’s Retirement System (KTRS) Pension Fund to pay the KTRS Medical Insurance Fund at a total savings to the Commonwealth of $87.7 million over the next 10 years.
“The sale of these bonds will bring a great deal of relief to the thousands of Kentuckians who depend on KTRS for their health insurance and who have been anxious for the Commonwealth to rectify this precarious situation,” said Gov. Beshear. “We must keep our word to Kentucky’s retired teachers who served our public school children well and continue their commitment to the education of Kentucky’s children even today.”
Since 2005, the KTRS Pension Fund has been paying the KTRS Medical Insurance Fund for the health insurance benefits for retired teachers, as directed by the Kentucky General Assembly in 2005, as a means to balance the state budget. Each transfer was to be repaid to the KTRS Pension Fund from the Commonwealth’s General Fund, with interest calculated at 7.5 percent annually over a 10-year period corresponding with each transfer. Over the past six years, KTRS has transferred to its health care fund more than $539 million. This bond issue will repay the remaining balance of the loan.
The original funding mechanism left KTRS concerned about the long-term funding of both the retirement benefit and the medical benefit for retired teachers and also raised concerns among taxpayers because the state would be paying an above market interest rate of 7.5 percent during an economic recession that has seen the lowest interest rate environment in more than three decades.
Through this refinancing, the interest on the notes was reduced by more than half to 3.304 percent. Most of the savings for the current biennium had already been included in the existing biennial budget.
On May 29, 2008, Gov. Beshear created the Pension Reform Work Group to review a myriad of issues, including a more efficient way to repay the outstanding balance of the loans to KTRS. Recommendations from the Work Group ultimately resulted, with strong urging from Gov. Beshear, in the passage of House Bill 531 during the 2010 Regular Session of the General Assembly.
The bill authorized ALCo to provide up to $875 million of financing to pay the outstanding balance of the KTRS loans and to finance additional loans to fund a portion of KTRS health care contributions for the next fiscal year.
“I am very pleased with the significant savings to the General Fund resulting from the refinancing of these loans, said Gov. Beshear. “This is good news in this economic environment where my administration continues to seek every opportunity to save money and run the most efficient government possible.”
Finance and Administration Cabinet Secretary Jonathan Miller serves as chair of both ALCo and the Pension Reform Work Group.
“Once again, Governor Beshear has spearheaded a collaborative effort resulting in a creative solution for a complex problem while saving tax dollars,” said Sec. Miller. “I know this will make a whole lot of active and retired teachers—and perhaps many bright young people who are considering entering the profession—breathe a sigh of relief.”
Other Pension Work Group recommendations involved strategies to control health care costs and increase contributions, which also led to legislation through the passage of House Bills 540 and 545 during the 2010 Regular Session. Those reforms included increasing employees’ contributions and prohibiting employees from retiring, returning to work for the state and earning a second pension.
“I appreciate the support and participation in these pension reform efforts demonstrated by KTRS and current teachers and retirees,” said Gov. Beshear. “Their willingness, along with the bi-partisan efforts of the General Assembly and the Pension Reform Work Group, will help ensure the long-term stability of health care and pension benefits for all members of this honorable profession.”
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