Kentucky Teacher Retirement System: Unveiling The Investment Portfolio

The Kentucky Teachers' Retirement System is the largest public retirement system in the state, providing pension benefits to 56,629 retired educators and 73,151 active members. The pension fund is derived from a combination of teacher contributions (8.92% of their salary in 2018) and state contributions (29.81% in 2018). While these contributions are invested in the market, teachers' pension wealth is determined by a formula based on their years of experience and final salary. In 2017, the Kentucky Teachers' Retirement System faced scrutiny for its investment in Russia's Sberbank, which lost value when the bank pulled out of the European market in 2022. However, the overall financial impact on the pension fund was negligible, and the system continues to seek diverse investment opportunities.

Kentucky Teachers' Retirement System lost $3 million selling its investment in Sberbank

The Kentucky Teachers Retirement System is the largest public retirement system in the state, providing pension benefits to 56,629 retired Kentucky educators, with 73,151 more actively enrolled. The pension wealth of teachers in Kentucky is derived from a formula based on their years of experience and final salary, rather than the returns on investments made by the fund.

The Kentucky Teachers Retirement System lost $3.2 million after selling its direct investment in Russia's largest lender, Sberbank, the day before Russia invaded Ukraine. The pension fund had initially invested $15.6 million in the bank in March 2017 and sold its shares for $12.4 million on February 23, 2022. Sberbank's shares fell by 95% after the bank announced it was pulling out of the European market, causing losses for the pension fund.

The Kentucky Teachers Retirement System issued a statement refuting social media reports that claimed it was the "second-largest shareholder" of Sberbank and that its investment had been reduced to less than $1 million. The system clarified that its holding was a small piece of the overall "Sberbank capital structure" and that its remaining exposure to holdings in Russia was negligible in a $26 billion portfolio.

Allison Ball, the Kentucky State Treasurer, urged divestment from all current Russian holdings, stating that the pension fund still held minor Russian investments through foreign investment portfolios. The Kentucky Employees Retirement System and County Employees Retirement System were also mentioned as having direct and indirect Russian investments.

The pension fund's remaining Russian holdings were valued at $30 million

The Kentucky Teachers' Retirement System (TRS) lost more than $3 million from selling its direct investment in Russia's Sberbank the day before Russia invaded Ukraine in 2022. The pension fund had invested $15.6 million in March 2017 and sold its shares for $12.4 million on February 23, 2022, resulting in a loss of $3.2 million. However, this loss was offset by approximately $3 million in dividends received during the period of investment, resulting in a net gain of about $200,000.

Following the sale, the pension fund's remaining Russian holdings were valued at approximately $30 million as of December 31, 2021. This amount represented a small proportion of TRS's total assets, which amounted to about $26 billion. The holdings were primarily through investments in two outside companies. Beau Barnes, the general counsel for TRS, stated that international portfolios are a common way for pension funds to diversify their investments globally. He noted that divesting from Russian holdings might be challenging due to the turmoil in Russia's economy and the closed status of the Russian stock market.

The future of Russian investments has been placed on the agendas of the investment committees overseeing state and local government pension funds. However, any decisions must be guided by laws that require acting in the best interests of investment returns. Despite calls for divestment from Russian holdings by officials like Kentucky Treasurer Allison Ball, the complex nature of international portfolios and the potential impact on investment returns present challenges in the decision-making process.

The situation highlights the impact of geopolitical events on investment strategies and the need to balance financial returns with social considerations. It also underscores the importance of due diligence and diversification in investment management, especially when dealing with volatile markets and unpredictable global events.

Kentucky Teachers' Retirement System's total assets are worth $26 billion

The Kentucky Teachers Retirement System (TRS) is the largest public retirement system in the state, providing pension benefits to 56,629 retired Kentucky educators, with 73,151 more actively enrolled. The system was established in 1938, and the pension wealth is derived from a formula based on the teachers' years of experience and final salary.

The total assets of the Kentucky Teachers Retirement System are worth $26 billion. This amount is separate from the pension fund, which is derived from contributions from teachers and the state. In 2018, teachers contributed 8.92% of their salary to the pension fund, while the state contributed 29.81%. The pension fund is not invested in the market, and teachers' pension wealth is not derived from the returns on those investments.

The $26 billion in total assets is invested in various ways, including in the market, with private equity and hedge funds. In March 2022, there was scrutiny over the TRS's investments in Russia, specifically in Russia's Sberbank. The TRS had invested $15.6 million in Sberbank in March 2017 and sold its shares for $12.4 million on February 23, 2022, the day before Russia invaded Ukraine. This resulted in a loss of over $3 million. However, Beau Barnes, the general counsel for the TRS, stated that the remaining exposure to holdings in Russia was negligible in the $26 billion portfolio.

The TRS's investments are managed by a Board of Trustees, which consists of various elected officials and representatives, including the chief state school officer, the state treasurer, and elective trustees who are members of the retirement system or annuitants.

The pension fund's investment in Sberbank was sold in response to Western sanctions

The Kentucky Teachers' Retirement System is the largest public retirement system in the state. It was established in 1938 and provides pension and other benefits to certified employees of school districts, state universities, community colleges, and other public educational agencies.

In March 2022, the Kentucky Teachers' Retirement System sold its direct investment in Sberbank, Russia's largest lender, for $12.4 million. The pension fund had invested $15.6 million in the Russian bank beginning in March 2017. The decision to sell the investment was made in response to Western sanctions imposed on Russia following its invasion of Ukraine. The sale resulted in a loss of over $3 million for the pension fund.

Sberbank faced significant pressure due to the sanctions and the economic isolation of Russia by Western countries. The European Central Bank ordered the closure of Sberbank's European arm, and the bank experienced a liquidity crisis and a run on deposits. Additionally, Sberbank was excluded from the SWIFT global payments system, further isolating it from the global financial system.

The sale of the pension fund's investment in Sberbank was a response to the economic sanctions and the deteriorating financial situation of the bank. The Kentucky Teachers' Retirement System recognized the risks associated with maintaining investments in Russian companies and took action to minimize potential losses. This decision was in line with similar actions taken by officials in other states and countries, who ordered reviews and divestments from Russian companies and investments supporting the Russian government.

Kentucky Teachers' Retirement System is the largest public retirement system in the state

The Kentucky Teachers Retirement System is the largest public retirement system in the state. It was established in 1938 and provides retirement benefits to 56,629 retired Kentucky educators, with 73,151 more actively enrolled. The system administers pension and other benefits to certified employees of school districts, state universities, community colleges, and other public educational agencies.

The basic structure of Kentucky's teacher-defined benefit (DB) pension is similar to that of other states. A teacher's pension wealth is derived from a formula based on their years of experience and final salary. However, unlike other retirement funds, a teacher's contributions and those made on their behalf by the state or school district do not determine the value of the pension at retirement. Although those contributions are invested in the market, often managed by private equity and hedge funds, they do not influence the pension wealth.

Kentucky has a five-year vesting period for teachers to qualify for a pension. Once qualified, teachers can retire with full benefits when they reach 60 years of age and have accrued at least five years of service. Teachers with at least 27 years of service can retire with their benefits at any age. Additionally, Kentucky allows early retirement at age 55 with at least 10 years of service, although benefits will be reduced based on years of experience and how early retirement is taken.

In 2018, teachers contributed 8.92% of their salary to the pension fund, while the state contributed 29.81%. This amounted to 38.73% of teacher salaries spent on Kentucky's teacher pension fund. However, not all of this investment goes towards benefits. While the full 8.92% contributed by teachers is for benefits, the state only contributes 5.61%, with the remaining 24.20% going towards paying down the pension fund's debt.

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