Kentucky Retirement System’s Unfunded Liabilities Continue to Soar

The Kentucky Retirement System’s (KRS) unfunded liabilities continue to grow, according to a recent report from its actuarial adviser, GRS Retirement Consulting. The system’s unfunded liabilities increased by approximately $2.2 billion over the past year as of June 30, bringing the pension’s funded ratio to approximately 32.8%.

The increase is attributable to “changes in the mortality assumption (longer life expectancy), and employee turnover (less than previously expected),” a spokesperson from KRS told CIO.

“The County Employees Retirement System (CERS) plans had modest declines in funded status due to the fact that we are in a phase-in period for the higher contribution rates that would otherwise have taken effect in July 2018 and will not be complete for three to four more years. Also, the asset return was slightly below the 6.25% assumption,” the spokesperson added. “All of the system’s funded statuses should begin improving and are projected to be fully funded in 2043.” The systems have 24 years remaining in their 30-year amortization schedule.

GRS links the decline in the funded ratio over the last nine years to three factors: “(1) actual contributions being insufficient to finance the unfunded actuarial accrued liability, (2) a decrease in the assumed rate of return in 2015, 2016, and again in 2017, and (3) actual investment experience being less than the investment return assumption.”

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There’s been a few proposed solutions to address the systems’ funded ratio, most recently with legislation (HB 1), passing in a July special session. The bill addressed issues with the pension for 115 quasi-state agencies, the greatest number of which are health departments and regional universities. Gov. Matt Bevin began an overhaul to the pension system this past summer. The measure was limited to the quasi-governmental agencies’ retirement plan, which were 12.9% funded at the time of the law’s passage, leaving four other state pension plans unaffected, but nonetheless severely underfunded. The funded status of the KERS non-hazardous agencies has no impact to the funded status issues of the other state pension plans, the spokesperson added.

However Moody’s responded with a report claiming the pension reform was a negative for the state’s credit rating, “because it pushes costs into the future and raises the likelihood that the state will take responsibility for a greater share of KERS’ unfunded liability.”

Bevin said he wasn’t surprised by Moody’s announcement, and added that its statement only reinforces his sentiment that there’s much work still left to do.

Tags: actuary, funded, Kentucky, Liabilities, Retirement System, unfunded