Kentucky Makes Changes to Free Pension from Funding ‘Death Spiral’

Kentucky’s Public Pension Oversight Board (PPOB) approved a slew of proposals intended to help the Kentucky Retirement System (KRS) recover from its perilous position, which sees the pension teetering on a roughly 33% funded ratio.

One of the most consequential proposals approved was a motion to transition the state pension systems away from a so-called “percent-pay model” to a “liability-based model.”

What this means is employers locked into the retirement system won’t have their contribution rate increase as other employers lay off employees so they are entitled to make lower contribution payments.

“The death spiral is that the remaining employers have to pay a higher rate, which encourages more employers to cut back on their staff, that results in an even higher rate for the remaining, which results in even more cutbacks – it never ends,” a spokesperson for the retirement system told CIO.

For more stories like this, sign up for the CIO Alert newsletter. 

“The solution is to take the aggregate liability and assign it to each individual employer, much like a mortgage, and they have a fixed payment over 24 years to pay it off,” the spokesperson said.

Other recommendations approved by the board include improving the pension systems’ ability to absorb “large shocks” potentially caused by volatile economic conditions or inaccuracies in the portfolio’s assumed rate of return.

The proposal would extend amortization periods for additional unexpected changes in the retirement system’s unfunded liabilities. For example, if a mortgage had two years left, and an exorbitant amount was added to the amount due, under current conditions, the KRS would still have just two years to pay that off, but under the new rule, the payment period would be extended by a reasonable timeframe.

Other proposals approved by the PPOB include the addition of representatives of the state treasurer’s office to the board.

“The treasurer is also involved in the retirement systems, so [it’s] a recommendation that the treasurer also be added,” Sen. Jimmy Higdon said in a statement.

State legislators would be admitted as non-voting members to the board as well, with the purpose of helping to educate them about the complex issues facing the retirement system.

The retirement system’s unfunded liabilities recently reportedly grew by approximately $2.2 billion over the past year as of June 30,^, 2019. The increase was attributed to “changes in the mortality assumption (longer life expectancy), and employee turnover (less than previously expected),” a KRS spokesperson told CIO.

Tags: Funding, Kentucky, KRS, Proposals, Retirement System, unfunded liabilities

A group of jaded investors have put the crypt in cryptocurrency by asking police to exhume the body of the founder of Canadian digital platform QuadrigaCX who died suddenly last year. Gerald Cotten took to his grave passwords for digital wallets holding approximately C$180 million ($135 million) of investor funds that no one has been able to recover.

Lawyers representing QuadrigaCX investors have sent a letter to Royal Canadian Mounted Police asking them to conduct an exhumation and post-mortem autopsy on the body of Cotten “to confirm both its identity and the cause of death given the questionable circumstances surrounding Mr. Cotten’s death and the significant losses of affected users.”

The lawyers said they enclosed a detailed compilation of publicly available information on the history of Quadriga, Cotten and others related to Quadriga “which, in our view, further highlight the need for certainty around the question of whether Mr. Cotten is in fact deceased.”

For more stories like this, sign up for the CIO Alert newsletter. 

Lawyers for the investors also asked that the exhumation and autopsy be completed by Spring of 2020 “given decomposition concerns.”

The 30-year-old Cotten died in December 2018 due to complications from Crohn’s disease while traveling to India, where his widow says he was going to open an orphanage. After his death QuadrigaCX, which had approximately 115,000 users, said it could not locate or secure a significant amount of cryptocurrency reserves.

Cotten’s widow Jennifer Robertson said in an affidavit that she has received online threats and “slanderous comments” including questions about the nature of Cotten’s death, and whether he is dead, according to Reuters.

After unsuccessful attempts at accessing the funds QuadrigaCX said it had to make “the tough but necessary decision to file for creditor protection.”

Investors were suspicious about the sudden death because of Cotten’s young age, and the inaccessible funds. Those suspicions grew in June when Ernst & Young, the court-appointed monitor and later trustee for QuadrigaCX, released a stunning report. It said that Cotten had transferred millions of dollars worth of Quadriga funds to personal accounts and/or to fund personal assets prior to his death.

“Significant volumes of cryptocurrency were transferred off platform outside Quadriga to competitor exchanges into personal accounts controlled by Mr. Cotten,” said the report. “It appears that user cryptocurrency was traded on these exchanges and in some circumstances used as security for a margin trading account established by Mr. Cotten.”

Ernst & Young also said that “substantial funds” were transferred to Cotten personally and other related parties, but that it has not located any support justifying the transfers. Funds received from and held by Quadriga on behalf of its users also were used by Quadriga for several purposes other than to fund user withdrawals.

“It appears that Mr. Cotten liquidated all of the Bitcoin deposited in the account on the third exchange (except for eight Bitcoin) for the equivalent of approximately $80,000,000 Canadian dollars over the course of three years,” said the report. “To date, the monitor has been unable to account for what happened to the proceeds of the sale of the cryptocurrency through the third exchange.”

Ernst & Young also said Cotten did not file personal tax returns for 2014, 2015 or 2017. Although he did file personal tax returns in 2014 and 2016, no Quadriga income was claimed for those years.