(car engine starts) (machine whirring) >> smith: every month, kentucky retirement systems makes over pension paymen, with the average retiree receiving around1,500. the total outflow is nearly $2 billion a year.t 2013, the krs board and kentucky legislators worried that in the future, they wouldno not haugh money to meet their obligations.20 >> i, pensions had moved to the forefront. i think people started to etrealize we let this debt out of control. >> smith: lawmakers decided it was time to make some drastic changes. >> we changed the system so that you no longer get a defined-benefit plan if you're a state employee. and you got this hybrid cash balance plan. >> smith: basically, a 401(k)-type plan. >> bically, a 401(k)-type plan. better than a 401(k), but not as good as a defined-benefit plan. (police siren wailing, people talking on radio) >> smith: the first to be affected were police, firefighters, and thousands of other public servants. public school teachers were spared. existing workers would keep their defined-benefit pension, but all new hires would be moved to a 401(k)-st

where was the kentucky retirement system sitting in 1999?> it was sitting at, at nearly 100%unded. >> smith: but then, in 2000, the dot-com bubble burst. krs lost $1.2 billion. >> i've served in the best of times, and now is the worst ofme >> smith: kentucky was sufferin but politicians were reluctant to raise taxes to pay the full cost of their bills, and they began to divert pension money. >> what will kentucky do? that's what you're assembled here in frankfort to decide. wa in kentucky, the pensio used basically as a piggy bank. the problem was, once you started to short your state pensions to cover the budgetsh tfall, it's hard to just do it the one time. of >> smith: onhe few local reporters paying attention was john cheves. >> i've been writing for 20 years now about the state's pension system and its bee you know, sort of a slow-motion car crash. >> smith: cheves watched as one governor after another invested in roads, bridges, libraries, and more. pension obligaons were not met. >> as governor, i'm thrilled to be able to support this