Kentucky’s three major pension plans remain national laggards. KERS Nonhazardous, less than 30% funded by Kentucky’s own measure, is either the worst or second-worst-funded public pension plan in America among plans with more than $10 billion in liabilities. Kentucky Teachers is only about 58%–60% funded, and CERS is only about 61% funded—placing both in or near the bottom quarter of major public plans and roughly twenty percentage points below the national average.

 Illinois has the worst credit rating of any state at A.  Kentucky, Pennsylvania, & New Jersey are tied for 2^nd worst at A+.   The other 46 states are AA.   The threat to Kentucky’s credit rating to an Illinois or below, helped force the legislature to begin fully funding the KERS actuarially required contribution in fiscal year 2015. Nevertheless, accumulated underfunding, adverse experience and later reductions in actuarial assumptions caused KERS Nonhazardous to fall further, reaching its historic low of 12.9% funded in fiscal year 2018 the worst for any state plan in U.S. History. Kentucky then began contributing amounts above the ARC because the plan faced a genuine depletion or insolvency risk.

CERS has a deceptive, deliberate underfunding policy. The legislature’s 2018 12% rate collar allowed CERS to certify employer rates below the uncapped actuarially determined rate, pushing part of today’s pension bill onto future taxpayers.

CERS actuaries calculate an actuarially determined contribution rate.  The CERS Board certifies a lower statutory rate when the 12% collar applies. Cities pay 100% of the lower certified rate. Nevertheless, the pension trust receives less than the uncapped actuarially determined contribution.   That lets local financial statements claim there was no contribution “deficiency” because the city paid the entire legally certified amount—even though CERS did not receive the full actuarially calculated amount.

The CERS contribution cap allows cities and counties to defer part of the actuarially determined pension contribution. The state does not forgive or assume the deferred amount. It remains in CERS as additional unfunded liability that must be recovered from participating employers in later years. Economically, local governments are borrowing from their employees’ pension fund at approximately CERS’s 6.5% assumed rate of return.

BENEFITS CUT IN REAL TERMS

A KERS or CERS retiree receiving $2,900 a month has lost nearly $98,000 since Kentucky stopped granting pension COLAs in 2011, measured against Social Security’s COLAs. That estimate captures only the frozen pension check. It does not include the additional loss from reduced retiree-health subsidies, increased premiums, deductibles, copayments, Medicare-related changes, and other benefit shifting during the same period. Kentucky’s teachers continued receiving a 1.5% pension COLA, but that adjustment substantially lagged Social Security inflation protection. Moreover, a significant portion of the financing used to stabilize teachers’ retiree health benefits came from mandatory contributions taken from active teachers’ paychecks—effectively requiring teachers to help finance the solution through reduced take-home pay.

A Kentucky retiree whose pension was $2,900 per month after the last KERS/CERS COLA in July 2011 has lost approximately $97,800 through September 2026, compared with receiving Social Security’s annual COLAs.

September 2026 monthly benefit	Actual/estimated benefit	Shortfall vs. Social Security benchmark
Social Security COLA benchmark	$4,273.52	—
KTRS with annual 1.5% COLA	$3,625.67	$647.84/month
KERS/CERS with no COLA	$2,900.00	$1,373.52/month

Kentucky retirees experienced a double reduction in retirement security: pension income failed to keep pace with inflation, while the economic value of retiree health coverage also declined. For KERS and CERS retirees, the combined loss is therefore materially greater than the estimated $97,800 pension-only loss.

Chris Tobe, CFA, CAIA, is the author of Kentucky Fried Pensions, available on Amazon