Lawmakers begin work of Public Pension Working Group with review of systems and factors contributing to issues
In the first meeting of the newly formed Public Pension Working Group on Tuesday, legislators heard an overview of pension system data and the latest numbers for the plans as they start the process of making a recommendation to the General Assembly for action by February 15.
The new pension group was formed to look at the structure, cost, benefits, and funding of the state retirement systems after pension reform legislation passed during the 2018 General Assembly was overturned by the Kentucky Supreme Court in December and no agreement was reached during a special session.
Presentations by Legislative Research Commission (LRC) staff provided lawmakers again with an overview of the structure and status of the state’s pension plans and explanation of reforms made up to this point.
Brad Gross, LRC staffer for the Public Pension Oversight Board, told the working group that five other groups and studies have been formed since 2007, along with the ongoing work of the Public Pension Oversight Board (PPOB). Much of the information covered in the first meeting of the group was a review of the same information discussed by those groups.
Looking at all systems, Gross said the current total unfunded liability for pension and health benefits for the pension plans now totals $42.7 billion. LRC staff explained 2018 saw the overall unfunded liability of the systems decrease, but most of the savings came from the systems’ health plans with a $1.8 billion dollar decrease in health care, while the unfunded liabilities of the pension side actually increased by $0.4 billion.
Those unfunded liability numbers are in addition to continued efforts to increase funding above the actuarially required contributions by the General Assembly in recent years.
When looking at the reasoning behind these numbers, presenters and legislators highlighted over-inflated assumptions for payroll growth and rate of returns on investments, which caused a major issue in the underfunding of the systems over the years.
Gross compared payroll growth to a 30-year mortgage where if an individual is assuming their salary will grow each year and calculates their mortgage on that assumption, but it does not increase in the way planned, the money not paid on the mortgage each time will have to be paid on the backend. For many years, both the Kentucky Retirement System (KRS) and the Kentucky Teachers’ Retirement System (KTRS) were assuming growth in that area they did not meet before lowering their assumptions in recent years.
The increase in payment required by the state as a result of those assumptions and other factors were also emphasized with growing contributions now totaling billions of dollars per year for the systems.
Legislators asked questions of the presenters about what has been paid, what factors led to the current issues facing the pension plans, and other specifics about the systems to review the data as they begin their work.
Sen. Wil Schroder, co-chair of the Public Pension Working Group, stated at the beginning of the meeting that the group will be meeting Tuesdays and Thursdays during the January interim before the General Assembly reconvenes to finish the 2019 session in February. Schroder also explained public input is welcome throughout the group’s work with all documents being accessible on the LRC website and the creation of an email address where all messages will be delivered to each member of the group. That email is email@example.com.
The group is to make a recommendation to the General Assembly by February 15, but that deadline could be extended if agreed upon by the co-chairs. According to the press release the group can meet at their discretion during the 2019 General Assembly and monthly during the legislative interim through December 30th.