A Citizen's Guide to Kentucky's Pension Crisis | Page 3

An impact on all Kentuckians
Kentucky is drowning in a financial crisis. With UNFUNDED LIABILITIES

PENSION TERMS
DEFINED
UNFUNDED LIABILITY

totaling more than $36 billion in 2015, Kentucky’s public pension systems are

The difference between the total value

among the worst funded in the United States. This financial crisis threatens the

of pension benefits owed to current and

retirement security of state and local government employees and teachers. But it

retired employees or dependents based

also has a critical – and negative – effect on all Kentucky taxpayers:

on past years of service and the actuarial
value of plan assets on hand. This is the
unfunded obligation for past service.

The underfunding has prompted national agencies to downgrade
Kentucky’s CREDIT RATING, meaning it costs taxpayers more to

STATE CREDIT RATING
Ratings assigned by bond rating agencies

build roads, schools and other important projects that serve the
public.

that reflect a state’s ability to pay debts and
the general health of the state’s economy.
A higher credit rating generally indicates

The public pension situation is complex and confusing. But having a clear understanding of the challenge it represents is vital if Kentucky is to find a way out of

lower interest costs (and lower costs to
taxpayers) on bonds issued by states to
finance public projects.

this crisis that threatens its financial future. Providing information that enables
such an understanding is the purpose of this issue brief, which:

• provides background data on Kentucky’s major pension
systems
• reviews how Kentucky’s pension systems got into such
poor shape
• compares Kentucky’s performance with national averages
• summarizes recent reforms in the system

EDITOR’S NOTE:
Throughout this document, all terms in

• outlines recommendations for moving forward and putting
our pension systems on a sound financial track

GREEN CAPITALS are defined in the gray
margin.

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