Kentuckians will watch this winter as Gov. Matt Bevin and the General Assembly struggle with an estimated $41 billion public pension shortfall. Retirement benefits for public workers are likely to be cut. The rest of the state budget — education, social services, public safety — will get squeezed.
Randy Wieck wants to know why everyone is just now starting to take this mess seriously.
Wieck, 63, teaches American history at duPont Manual High School in Louisville. Over the last four years, he has filed three lawsuits related to Kentucky’s teacher pensions in state and federal courts. Sometimes he challenged the state’s massive under-funding of the Kentucky Teachers’ Retirement System. Other times he fought to get KTRS to fully disclose its investments in higher-risk, higher-fee private equities — or simply to get out of those funds altogether.
So far, all of Wieck’s litigation has been dismissed by judges, gaining him nothing but a reputation as a malcontent at the state Capitol, with KTRS and among his own teachers’ unions, which he sharply criticizes for not doing enough to protect the retirement security of their members.
“Mr. Wieck is disgruntled because we have not agreed to participate in any of his failed legal challenges to date, on the advice of our attorneys, who did not believe they had any chance of success,” said Brent McKim, president of the Jefferson County Teachers Association.
In October, the Kentucky Educational Professional Standards Board opened an inquiry into Wieck’s use of school email to communicate with other teachers about the pension shortfall. That put his teaching certificate at risk. Recently, without explanation, the board dropped the matter for the moment.
Wieck said he can live with his unpopularity. He’s already preparing another state lawsuit to highlight the fact that the Kentucky legislature — for 10 of the last 11 years — paid many hundreds of millions of dollars less than the annual recommended contributions into KTRS. Largely as a result of this trend, KTRS now holds about $17 billion in assets, which is only 56 percent of what it’s expected to need for teachers’ future pension checks.
“It’s not a mystery how we got here,” Wieck said in a recent interview.
“You try paying three-quarters of your mortgage for a few years and then see how the bank responds to you,” he said. “You try paying three-quarters of your restaurant tab and then walk out the door after dinner and see what happens. But the state of Kentucky thought nothing of paying three-quarters of what was due the teachers’ pensions for year after year. And we’re surprised there’s a problem now?”
Wieck said his newest suit will demand that Kentucky raise enough revenue through tax increases to repay the teachers’ pension fund for what it was supposed to be getting all along.
Raising taxes needn’t be as difficult as it sounds, he said. During this fiscal year, the state expects to forfeit about $13 billion in “tax expenditures” — a vast collection of tax breaks and tax incentives — which is more money than it will collect for the General Fund. Lawmakers should go through that list with a fine-toothed comb and “close the loopholes” that don’t make sense anymore, he said.
Wieck originally filed his suits on his own. But the advocacy nonprofit that he started with a GoFundMe campaign, the Teacher Retirement Legal Fund, has hired Ted Lavit, one of the lawyers who worked on the landmark litigation that convinced the Kentucky Supreme Court to require a systemic overhaul of school funding under the Kentucky Education Reform Act of 1990. He’s confident this case will make a similar impact.
“We’re not even asking for new laws to be written here,” Wieck said.
“We’re simply saying, ‘Honor the contract.’ Teachers did. We paid into the retirement system, as the contract required, with every paycheck since the day we started work. We started by contributing about 9 percent of our salary, and as time went on and more money was needed, it slowly rose, and now it’s about 13 percent of our salary. So we did our part under our employment contract. The state needs to hold up its end.”
Last week, eight current employees and retirees under Kentucky Retirement Systems pension plans — which includes state and local government workers — filed a separate lawsuit against current and former leadership and financial advisors of KRS, as well as the private equity firms that sold it $1.2 billion in hedge funds. This was filed on behalf of Kentucky taxpayers and retirees under KRS, arguing that these risky investments constituted fiduciary breaches that further harmed the system’s pension assets.
‘Suddenly my eyes opened’
Wieck is a Louisville native who spent years studying and teaching his way across Western Europe. He was in Finland when he felt compelled to come home briefly because his aging parents needed his assistance. That was two decades ago. Teaching in his hometown was a good fit, it turned out.
His epiphany on pensions came in September 2013 when Rolling Stone magazine published an article by Matt Taibbi called Looting the Pension Funds.
In the article, Taibbi warned that on a national scale, private equity firms were charging exorbitant fees to place public pension money in complex investment schemes, such as hedge funds, many of which yielded disappointing returns. Neither the fees nor the nature of the investments were ever fully explained to the public workers whose nest eggs were being mishandled, Taibbi wrote.
Aggravating this problem, Taibbi wrote, politicians for many years diverted much of the government money legally obligated for pensions to other spending. That diversion allowed them to balance state budgets without having to raise taxes. He accurately named Kentucky as one of the worst pension under-funding offenders. (This year, for example, the primary pension fund for Kentucky’s state workers has just 13 percent of the assets it’s expected to need to meet future obligations, putting it in far worse shape than KTRS.)
“Here’s what this game comes down to,” Taibbi wrote. “Politicians run for office, promising to deliver law and order, safe and clean streets, and good schools. Then they get elected, and instead of paying for the cops, garbage men, teachers and firefighters they only just 10 minutes ago promised voters, they intercept taxpayer money allocated for those workers and blow it on other stuff. It’s the governmental equivalent of stealing from your kids’ college fund to buy lap dances.”
As public pension funds predictably run low, the politicians who wrecked the system suddenly insist they have no choice but to slash benefits, Taibbi wrote. Traditional pensions guaranteed for life are replaced with 401(k)-style accounts that shift the burden to modestly paid workers to save enough money to carry them through 30 years of retirement. Other retiree benefits — cost-of-living adjustments, relatively cheap medical coverage — become unaffordable luxuries.
“Suddenly my eyes opened. What he was describing, it was exactly what we were seeing here in Kentucky!” Wieck said.
Appalled, he began making phone calls.
The Jefferson County Teachers Association and the Kentucky Education Association told Wieck not to worry, they had representatives at the state Capitol monitoring the pension situation, he said. Among other things, the unions were promoting the idea of a “pension bond” — several billion dollars in borrowed money, to be repaid over 30 years at 5 percent interest — to prop up KTRS. However, the legislature rejected that idea as too risky.
Various lawmakers assured him they had enacted rounds of “pension reform” at the state’s retirement systems. That very year, Senate Republican and House Democratic leaders congratulated themselves on passing Senate Bill 2, which enrolled future state workers in a less generous “hybrid cash-balance” plan rather than defined-benefits pensions. Also, future public employees will have to work longer and contribute more money for their benefits before they retire.
“This is a shining example of how government should tackle pressing problems facing the state,” Senate President Robert Stivers, R-Manchester, said in 2013. “Public pension reform was accomplished through a bipartisan, bicameral and collegial way.”
Yet for all of the confident talk, as time passed, the state’s public pension debt kept rising.
“What surprised me was, I felt like people were lying to me,” Wieck said. “They’d been telling all of us that this was a healthy retirement system, when even a cursory look at the numbers told you it was anything but healthy. All of the national ratings agencies, they just looked at our numbers and they knew right away that we didn’t have anywhere near the level of money we were going to need to meet our future obligations. That’s why they keep down-grading us. It’s simple math.”
Taking them to court
Although he knew little about the law — “not enough to get arrested,” he quipped — Wieck typed up and filed his first lawsuit in November 2014 in Jefferson Circuit Court against the KTRS Board of Trustees.
Wieck alleged that the retirement system’s trustees had failed in their fiduciary duty by not “aggressively and publicly demanding the full funding they need to stay solvent;” by not informing teachers of the “dire funding status;” and by not “aggressively exposing flawed and biased research in the legislature’s pension reform process.”
Officials at KTRS declined to discuss Wieck for this article, citing his history of litigation against the agency.
That first suit was dismissed for improper venue. Wieck lives and works in Jefferson County; KTRS is headquartered in Franklin County.
So he tried again nearly a year later, suing in U.S. District Court along with two other teachers and requesting class-action status to represent everyone enrolled in KTRS. This time, the defendants included KTRS and private equity firms KKR, Blackstone Group, Carlyle Group and Rockwood Capital. Wieck said the underfunded retirement system inappropriately risked nearly $600 million in pension assets with those firms during the previous eight months.
This suit also was dismissed. Senior U.S. District Judge Charles R. Simpson III cited several reasons, including sovereign immunity — the concept that, in general, governments are immune from civil liability — and what he described as Wieck’s failure to state a specific harm suffered at the hands of the private equity firms.
Not one to let matters drop, Wieck sued once more in November 2016. (By now, thanks to a GoFundMe campaign that he says has raised about $25,000 so far, his nonprofit Teacher Retirement Legal Fund was able to hire legal counsel and operate a website to promote his battles.) This time, Wieck and 29 other Louisville teachers sued Bevin, Stivers and Jeff Hoover, who at that time was incoming speaker of the Kentucky House of Representatives.
Stivers and Bevin
The teachers accused the state’s leaders of short-changing KTRS, collectively cheating them of secure retirements in violation of state law and their rights under the state and federal constitutions to life, liberty and property.
The case started in Franklin Circuit Court, the state court in the capital city of Frankfort. But the defendants shrewdly had it removed to U.S. District Court, where a federal judge declared that he lacked the jurisdictional authority to tell state officials how to spend state money. Dismissed.
“The main thrust of the suit is monetary,” wrote U.S. District Judge Gregory F. Van Tatenhove in his dismissal order. “In fact, there is no other remedy available to plaintiffs except for this court to force the defendants to withdraw from the treasury to fully fund KTRS.”
‘Nobody wants to rock the boat’
One of Wieck’s staunchest allies, Betsey Bell, 66, just retired from teaching high school English in Louisville in the middle of the school year.
Bell said Bevin made the decision for her in August after a Facebook Live video he gave on the pension shortfall “felt like he was insulting every one of us. It was really the last straw. Teaching is already such a tough job, and here is the governor of the state talking about how teachers only care about themselves and they’re so greedy and they hoard sick days. I just said, ‘The heck with this.’ ”
Bell was one of the teachers who joined Wieck in his last two suits. She admires him for taking action to defend his pension, something she says few other educators seem willing to do.
“People will complain in private, but in public, nobody wants to rock the boat,” Bell said. “Honestly, I can’t figure out why we’re not more vocal. Teachers seem to live in fear for their jobs, so they almost never speak up. Principals live in fear of someone filing a grievance. Everyone in education is so afraid.”
Wieck said he’s working with his lawyer on their next pension funding lawsuit, which they will do their best to keep in the state courts. If the Kentucky Supreme Court had the authority to order the General Assembly to spend more on schools nearly 30 years ago, then it can tell lawmakers to better fund the pension systems today, he said.
He’s keeping one eye on the pension debate in Frankfort, but he doesn’t see much in Bevin’s proposals that impresses him. Wieck said shifting future teachers into newly established defined-contribution accounts simply cuts off badly needed funding for the existing pensions because, as time goes on, there will be fewer active teachers contributing into the current system with each paycheck as older teachers keep retiring and withdrawing money.
And freezing retired teachers’ annual cost-of-living adjustments on their only income — in Kentucky, teachers don’t collect Social Security — is a heartless way to save money, he said.
“This whole discussion has taken on a diabolical quality that I don’t think is accidental,” Wieck said. “It’s supposed to make all of us in the public sector look greedy. It’s supposed to turn people against us. ‘Look, you people hoard sick days! Why do you even still get pensions? At least the governor is trying to do something, why won’t you just shut up and support him?’ And meanwhile, our contract has been violated year after year.”