After the actuary for the Kentucky Teachers’ Retirement System (KTRS) released their actuarial analysis of the “Keeping the Promise” pension reform framework last week, State Budget Director John Chilton called for the analysis to be redone with different assumptions Tuesday morning.
The analysis done by Cavanaugh Macdonald Consulting on the plan stated the bill would actually put the system in worse shape if passed than if the state just funded the system and made no structural changes.
However, Budget Director Chilton said Tuesday that Cavanaugh Mcdonald’s analysis uses very different assumptions, such as how much the system’s investments will earn, than what is actually in place for the system—which he argues skews the numbers.
The analysis also makes their projections on a 20-year basis, where the Bevin administration and lawmakers crafting the plan have stated the plan is a “30-year fix.”
“In the past, a lack of realistic and rational actuarial assumptions helped obscure the distressed financial status of the plans and contributed to the long-term unsustainability of the plans. We will ask Cavanaugh Macdonald to prepare calculations with several alternative assumptions so that policymakers can make informed decisions based on scenarios that include realistic assumptions and that are satisfactorily reconciled with those that Cavanaugh Macdonald provided in the past,” Director Chilton said in a statement Tuesday.
On Monday, actuarial analysis for the proposed pension reforms were expected to be released and discussed at the board meeting of the Kentucky Retirement System (KRS), the system that covers other state employees. However, at that meeting, Chilton stated that the Bevin administration has received the preliminary information from KRS actuaries but will be asking for variations on that analysis as the bill continues to change and did not release those draft comments at the meeting.
Chilton also stated that recent “distractions” in Frankfort including sexual harassment allegations and changes in House leadership have slowed down the speed in which pension reforms can take place.
While the analysis of the pension reform bill was not released Monday, members of the KRS Board did get a briefing from GRS Consulting on the actuarial analysis for the system as it currently stands and what budget numbers will have to be to ensure the system stays afloat in the coming years.
The actuaries stated that the system’s unfunded liability increased by $5.2 billion because of changes to the assumed rate of return on investments for many of the plans in that retirement system from 6.75 percent to 5.25 percent, assuming zero percent in payroll growth rather than the current 4 percent, and adjusting the rate of inflation assumptions.
Also changing the assumptions is the amount required by the state to pay into the pension plans in order to pay benefits because KRS has not met its investment return goals. GRS Consulting representatives explained that in 2018, the employer contribution will be 83% of pay for KERS Non-Hazardous—the plan in the worst shape of all pension plans in the state at less than 15% funded.
That 83% is a large chunk of extra money the state will have to find to put into the system compared to what they have already been putting in as the employer contribution for the same plan was at 50% in 2016 before the changes.
The actuaries also illustrated the dire situation the system finds itself by pointing to the fact the system only has around $2 billion in assets as of June and is paying out around $960 million in benefits each year, meaning the system only has around two years of assets on hand.