Performance audit of KRS included in recommendations to legislature by pension oversight board

broken piggy bank with coins isolated on white background.

In the final meeting of the Public Pension Oversight Board before the 2016 session, recommendations were put forth by the group to help shore up the state’s pension systems. Among the items included in the report is a comprehensive performance audit of the Kentucky Retirement System (KRS), an action called for by the Kentucky Chamber of Commerce.

In the meeting Thursday, members of the oversight group approved 23 administrative and legislative recommendations aimed at fixing issues within the state’s pension systems.

State Sen. Jimmy Higdon included a legislative item that would make the General Assembly require and provide funding for a performance audit of the Kentucky Retirement System by the state auditor. Such an audit should provide recommendations for reducing administrative and investment expenses of the system.

A comprehensive performance audit of KRS by the state auditor was first called for by the Kentucky Chamber last year.

Since then, the idea has been endorsed by legislators, including Higdon. The Chamber’s call has also been met with support from new Gov. Matt Bevin and Auditor-elect Mike Harmon.

Kentucky Chamber President and CEO Dave Adkisson has called on funding for the audit as soon as possible to ensure the issues within the system, which currently sits at 18 percent funded, are addressed so reforms can be made.

Other items included in the recommendations put forth by the group Thursday deal with:

  • Requesting the General Assembly use the new lowered assumed rate of return passed by the KRS board when appropriating funds for system in next two year budget
  • Extra money for the systems in addition to the actuarially required contributions (ARC)
  • Standardization of investment fee reporting across all three systems
  • Senate confirmation of KRS and KTRS board members
  • Legislative review of KRS and KTRS contracts
  • Passage of “housekeeping” bills of each system
  • Oversight board decision on firms to conduct actuarial audits on systems, rather than the system choosing their own auditor
  • Spiking prohibitions

Also discussed at the meeting was what the systems will be looking for in terms of funding when legislators craft the next two-year budget in the 2016 session.

Officials from the Kentucky Teachers’ Retirement System (KTRS) explained that they will be looking for more funds in addition to what is being paid by the state currently to the tune of $520 million in 2017 and $512 million in 2018 to help with the system’s underfunded liability. All total, with what is currently being paid into the system, KTRS is looking for $1.27 billion in 2017 and $1.116 billion in 2018, a large chunk of the state’s total budget.

As for the Kentucky Retirement System (KRS), Executive Director Bill Thielen told the oversight board he could not provide concrete funding request numbers to the group but explained his board’s recent decision to lower the system’s assumed rate of return from 7.5 percent to 6.75 percent, a move which will bump up the dollar amount the state will be asked to pay into the system.

Thielen asked legislators to consider the 6.75 percent assumed rate of return when allocating funds in both years of the next two-year budget, not just 2018. That request was one of the recommendations included in the group’s report to legislators listed above.

Below is a slide from the KRS presentation to the group explaining how much will be needed in 2017 for the state to meet the actuarially required contribution (ARC):

krs arc with lowered rate of return

The 2016 session begins the first week of January and legislators will begin debating details of the budget and how to tackle the state’s pension problems. Keep checking Bottom Line for updates throughout session and more.

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Jacqueline Pitts
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