Unfunded liabilities in Kentucky’s public pension systems are expected to grow under new accounting rules approved Monday by the Governmental Accounting Standards Board.
The impact of the new standards, which take full effect in 2013, isn’t clear, but a recent study by the Center for Retirement Research at Boston College found 2010 funding levels for several state and municipal retirement plans would’ve dropped from 76 percent to 57 percent under the new rules.
Funding levels for state workers’ pensions in Kentucky would’ve dropped from 40.3 percent to 23 percent, according to the study; city and county workers’ pensions would’ve dropped from 65.5 percent to 56.8 percent; and state teachers’ pensions would’ve dropped from 61 percent to 51.2 percent had GASB’s proposal been in place in 2010.
The study didn’t separate Kentucky’s individual pension plans, which had $19.2 billion in combined unfunded liabilities in 2011.
The new standards could be especially burdensome for states that haven’t funded pension plans at recommended amounts for several years, Robert Attmore, chairman of GASB, told the New York Times.
Attmore declined to name specific states, but Kentucky’s funding woes have been well documented.
“The new standards will improve the way state and local governments report their pension liabilities and expenses, resulting in a more faithful representation of the full impact of these obligations,” Attmore said in a statement Monday.
“Among other improvements, net pension liabilities will be reported on the balance sheet, providing citizens and other users of these financial reports with a clearer picture of the size and nature of the financial obligations to current and former employees for past services rendered.”
The GASB plan calls for governments to count unfunded retirement obligations as liabilities and severely underfunded pension systems to lower their assumed rates of investment returns, among other items.
However, the Boston College study’s authors cautioned against looking too deep into the new numbers.
“It would be unfortunate if the press and politicians characterized these new numbers as evidence of a worsening of the crisis when, in fact, states and localities have already taken numerous steps to put their plans on a more secure footing,” the study says.
“Reforms need to be done carefully and thoughtfully, remembering that pensions are an important part of the total compensation of public sector workers.”
William Thielen, interim executive director of the Kentucky Retirement Systems, said KRS trustees and staff will examine the changes with its actuary, Cavanaugh and Macdonald Consulting, over the next several months as KRS adjusts to the new rules.
“There is some level of concern about how they’re to be implemented, what it means in terms of funding and what it means in terms of the educational effort it’s going to take to understand them and fully implement them,” Thielen said.
Officials with Kentucky Teachers’ Retirement System declined to comment on the new accounting rules because they had not reviewed the changes.
Kentucky is one of many states that have implemented pension reforms since the recession. In 2008, the General Assembly passed a law that gradually increases contributions while decreasing some benefits for future retirees.
A legislative task force is set to further examine the state’s retirement systems this summer. Thielen could not say whether the task force would discuss the GASB’s new accounting standards.
“They’ve got a mission as set out in HCR 162 that was passed during the session to look at benefits and funding and come up whatever recommendations they decide,” he said.