Lawmakers get glimpse of proposed pension plan

Committee chairs differ on when tweaks should be made

By Kevin Wheatley, Published:

Lawmakers on the Public Pension Oversight Board got their first glimpse Tuesday of various tweaks proposed by actuaries for the Kentucky Retirement Systems, which could mean millions more in contributions to the underfunded pension plans.

And, after the KRS Board of Trustees deferred action on adopting recommendations from Cavanaugh Macdonald Consulting at its May 15 meeting, the co-chairmen of the oversight committee differed on when such a move should be made.

The Public Pension Oversight Board heard from representatives of the $15.7 billion KRS, which oversees benefits for some 334,000 government employees and retirees, and Cavanaugh Macdonald actuaries for about two hours on the firm’s five-year actuarial study of the pension program. 

Actuaries have suggested lowering a number of assumptions employed by KRS, such as moving the assumed investment returns for the five plans administered by KRS from 7.75 percent to 7.5 percent and reducing expected wage inflation from 4.5 percent to 4 percent.

Such changes would have an immediate effect on the pension systems’ balance sheets, increasing total unfunded liabilities from $17.7 billion to $19 billion, according to Cavanaugh Macdonald’s experience study.

Pension payments from state and municipal governments would rise as well in the 2017-18 biennium, with the state shouldering an additional $93 million in actuarially required contributions for the state employees and state police plans and local governments responsible for an extra $25.4 million in the county employees systems, according to Cavanaugh Macdonald projections.

KRS trustees are under no time crunch, as the state has budgeted pension contributions for the current biennium, Tommy Elliott, chairman of the KRS board, told The State Journal earlier this month. Trustees also cited ongoing budget discussions by local governments, which would be required to meet the revised contribution rates, as reason for delaying action.

Republican Sen. Joe Bowen of Owensboro, co-chairman of the panel, bristled at the suggestion by KRS Executive Director Bill Thielen that the pension systems’ trustees based their decision to defer Cavanaugh Macdonald’s recommendations partly on politics.

Thielen said in his personal view, trustees considered not only the economic factors in lowering assumptions, but also political pressure the General Assembly has faced in attempts to shore up funding in KRS, most recently in 2013, when lawmakers pledged to pay full contributions into the pension plans.

“In these economic times, that’s been a difficult decision for the General Assembly, so I think some of the board members took that into account in deciding that, well, maybe we ought to look at this a little bit later down the road,” Thielen said, noting actuaries could revisit and adjust their proposals with the extra time.

Bowen, however, said time is not in the General Assembly’s favor, suggesting the sooner legislators know what to expect from a budgetary standpoint, the better.

“We need to make decisions in a very expeditious manner, and I don’t know, I guess I for one would be somewhat concerned with deferring action from one quarterly meeting to the next because time is of the essence,” Bowen said.

Rep. Brent Yonts, D-Greenville, noted the biennial budget has been set, so Cavanaugh Macdonald’s recommendations would have no impact until lawmakers write the 2017-18 budget in the 2016 legislative session. What’s more, pension contributions calculated by actuaries could change between now and the next budget-writing session, he said.

Still, the multi-million-dollar bump in state contributions to KRS could prove a difficult pill to swallow two years from now if the recommendations by Cavanaugh Macdonald are adopted by the KRS trustees.

“That’s going to be a big problem unless there’s a huge influx in the economy, and I don’t see that happening real fast,” said Yonts, the oversight committee’s other chairman, after Tuesday’s meeting.

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