State retirees and a member of the state Senate leadership are voicing sharp displeasure with a 25 percent raise given Friday to the top official of the financially struggling Kentucky Retirement Systems.
Bill Thielen, executive director of KRS since 2011, had announced plans to retire at the end of the year, and KRS had been working with a Colorado search firm to find a replacement. On Friday, its board of trustees — on a retreat in Covington — shelved the search and announced that Thielen had been enticed to stay nearly three more years. He will be paid $215,000 a year.
“Thielen’s experience with KRS, including his extensive background with the Kentucky legislative process, makes this a much better option during these challenging times than bringing in a new, much less experienced KRS executive director,” KRS Board Chairman Tommy Elliott, a Louisville banker appointed by Gov. Steve Beshear, said in a press release.
Thielen said that the search firm, EFL Associates, told the KRS search committee that it would be very difficult to find a director not only because of the current salary level but also because of KRS’ financial plight and Frankfort’s location. He said five out-of-state candidates were under consideration.
“The search committee didn’t see anybody that they were satisfied with so they talked to me about staying on,” Thielen said. Thielen said EFL was paid $38,500 for the search.
A KRS question-and-answer document posted in connection with the aborted director search put the expected salary at $205,000 to $250,000, “based on a fairly recent compensation study.”
Until his new contract takes effect Dec. 1, Thielen will receive his current annual salary of $171,192. His new departure date will be June 30, 2018.
More than 20 commenters jeered the move on the Kentucky Government Retirees’ Facebook page. The group’s co-founder, retired state employee Jim Carroll of Frankfort, said pensioners aren’t pleased.
“We’ve heard quite a bit of expressions of unhappiness over the scope of the raise itself, how much the raise was under this circumstance,” he said. “Quite a few of our folks felt it was unjustified.”
The negative reaction extended into the state General Assembly. Senate Majority Whip Jimmy Higdon, R-Lebanon, said that whatever KRS paid for a national search was “obviously money wasted.”
“I’m very upset about a pay raise of 25 percent to the executive director of KRS, especially in light of that the system is severely underfunded, state employees are receiving a 1 percent pay raise this year, retirees are not receiving a COLA (cost-of-living adjustment) and the taxpayers are on the hook for the underfunded liabilities of the Kentucky Retirement System.”
“This is a line-in-the-sand moment,” Higdon said. “We will in the future be able to find a way to control these types of moves by boards and commissions that have the authority to make pay raises.”
Kentucky House Republican Floor Leader Jeff Hoover joined Higdon in criticizing the raise.
“It has been well documented in the media through countless studies that the Kentucky Retirement Systems is one of the worst-managed public retirement systems in the country,” Hoover said in a statement Monday. “Yet in the face of those reports and funding levels at less than 20 percent, the KRS board of directors saw fit to give its executive director a 25 percent pay increase.”
One of KRS’ pensions, for state retirees and workers in non-hazardous occupations, is one of the most underfunded public pension plans in the United States. As of last December, it was only 21 percent funded, largely because of money being siphoned out to prop up the state budget over more than a decade.
(Read KyCIR’s 2014 report: “When it Comes to Investments, Kentucky Keeps Pension Holders in the Dark”)
KRS management itself has taken heat over its investment practices. Among U.S. public pension plans, KRS has been a leader in shifting more money out of stocks and bonds and into so-called alternative investments, like hedge funds and private equity funds, with high fees, low liquidity and contract terms that forbid public disclosure. About 35 percent of KRS’ $15 billion in assets is invested in alternatives.
A recent review by CEM Benchmarking of Toronto showed that KRS’ five-year investment return was lower than the median return of peer-group public pension plans in other states. It put KRS into a “negative value-added, high-cost” quadrant of plans.
Likewise, KRS’ investment return in the state fiscal year ended June 30 compared poorly with the state pension plans for teachers and state legislators and judges. According to the Legislative Research Commission, KRS earned 2 percent on its money last fiscal year, while the teachers’ plan earned 5 percent and the legislators and judges’ plan earned 10 percent.
Carroll, who attended the KRS retreat in Covington, said two members of the KRS board voted against the Thielen contract — Keith Peercy, representing State Police Retirement System, and David Rich, representing the County Employees Retirement System.
Peercy said in an email that he was not opposed to Thielen returning, but he found the contract terms “unpalatable.”
“I knew that support for the new contract terms among the group that elected me would be virtually nonexistent,” Peercy said. “The feedback that I’ve received has overwhelmingly confirmed that fact.”
Reporter James McNair can be reached at email@example.com or (502) 814.6543.
The story and headline have been updated to include Hoover and Thielen’s comments.