The Kentucky Retirement Systems’ net assets have fallen $680 million in this fiscal year’s first nine months as investment income and contributions failed to cover rising retirement benefits and other expenses.
Total assets in the KRS pension and insurance funds dropped from $14.8 billion July 1 to $14.1 billion as of March 31, KRS trustees learned at a board meeting Thursday.
KRS collected more than $860 million in contributions and more than $44 million in investment income during those nine months, but paid benefits in that period totaled more than $1.5 billion with about $33 million in additional expenses, according to unaudited KRS financial statements.
Todd Moore, KRS accounting director, said the contributions were down about $48 million from the same time period last year because of errors in KRS’s START computer system, which was fully implemented Sept. 15. Those errors will be corrected by the end of the fiscal year, he said.
Moore also noted troubles in the stock market. While the pension fund gained around $79 million in investment income as of March 31, the insurance fund lost more than $34 million.
“Hopefully before the end of the fiscal year the numbers will look a little bit better,” he told trustees Thursday.
KRS oversees pension plans for more than 340,000 current employees and retirees in state and local governments. As of July 31, it faced a total unfunded liability of $19.2 billion, but officials have said the plans aren’t at risk of default.
An accurate picture of the unfunded liability won’t be available until after the start of the next fiscal calendar later this year. KRS’s independent actuary, Cavanaugh and Macdonald Consulting, will start examining numbers in August, KRS Interim Executive Director William Thielen said.
Actuaries from the firm presented their findings on KRS’s unfunded liability at the board’s November meeting.
While KRS’s assets are dropping, its liabilities are growing. From January to March, about 1,300 state and municipal employees retired, including 387 with a full pension and 830 early retirees, initial retirement numbers show.
Pensions for retirees rose about $64 million and insurance payments increased more than $4 million compared to the first nine months of fiscal year 2011, according to KRS financial statements.
Thielen said poor performance on the stock market was the primary force behind the multi-million dollar decline, noting KRS investments returned 2.69 percent in the pension fund and .03 percent in the insurance fund in a one-year period as of March 31.
That’s down from three-year yields of 15.48 percent in the pension fund and 17.76 percent in the insurance fund, according to investment numbers presented to the board Thursday.
If the stock market doesn’t improve, KRS will likely see its assets shrink further, Thielen said.
“If the last quarter is negative, then we could be very flat for the year or even negative, depending on the market,” Thielen said.
He expects KRS’s unfunded liability will grow to some extent considering this year’s volatile stock market and an unfunded cost-of-living increase for retirees that went into effect last July.
“My expectation would be, yes, we will see an increase in the unfunded liability,” he said.