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Date: 07-13-2017

A Kentucky Retirement Systems board majority appointed by Gov. Matt Bevin has made clear for months that it believes history has proved past assumptions have been too high. A Kentucky Retirement Systems board majority appointed by Gov. Matt Bevin has made clear for months that it believes history has proved past assumptions have been too high.

FRANKFORT, Ky. — School districts and local governments will have to contribute more for their employees’ pension benefits under a new set of assumptions made Wednesday by the Kentucky Retirement Systems board.

Pressing forward on the conservative path it began taking last spring, the board voted 11-5 to lower the assumed annual interest rate it would earn on investments of the County Employee Retirement Systems to 6.25 percent from 7.5 percent.

The board also voted to lower to 2 percent from 4 percent the assumed growth in payroll for the local governments and school districts that participate in the CERS plans.

The new assumptions will mean less projected revenue from investments and the employee contributions into the CERS plans in future years. And that means the systems' actuary will demand more in contributions from the local governments to keep the plans afloat.

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And those local government employers include school districts whose noncertified staff (janitors, bus drivers, cooks, etc.) are covered by CERS.

“We believe it means a drastic, not-phased-in increase in the employer contribution rates,” said J.D. Chaney, deputy executive director of the Kentucky League of Cities. Chaney said he could not immediately estimate how much more a city would have to pay, but that it would be "substantial."

Eric Kennedy, director of governmental relations for the Kentucky School Boards Association, said, “We want the pension plan to be well-funded to ensure the pension benefits will be paid to our employees. However, we’re very concerned that a sudden and substantial increase that will result in the employer contributions will cause unexpected financial difficulties for school boards.”

But a Kentucky Retirement Systems board majority appointed by Gov. Matt Bevin has made clear for months that it believes history has proved past assumptions have been too high. Those assumptions are used by the systems' actuaries to calculate the required contribution the government employers must make, but even when government employers make those required contributions the debts of the pension systems have continued to balloon, they say, because the assumptions are too rosy.

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Thomas Stephens, secretary of the Personnel Cabinet and a member of the board, said later Wednesday that the board has a responsibility to make assumptions that give lawmakers and the public a realistic view of the outlook for finances of the pension systems — regardless of how ugly it might be.

“And today the board took a significant step in being honest,” Stephens said.

Besides new assumptions for CERS plans, the board on Wednesday also lowered assumptions on investment rates of return for all of its health insurance plans and for the pension plan covering state government employees in hazardous duty jobs to 6.25 percent from 7.5 percent. And it lowered the assumed annual payroll growth for the pension plan covering state hazardous duty employees to 0 from 4 percent.

In May, the board voted to adopt lower assumptions for investment return growth and other variables for its largest and most financially-troubled plan that covers most state government employees — an action that was estimated at the time to increase the massive debt of state pension systems by roughly $2 billion.

That took the estimated unfunded liabilities of all Kentucky public pension systems combined — the Kentucky Retirement Systems plans plus the separately governed Teachers Retirement System — to about $40 billion.

The actions taken on Wednesday to lower various additional assumptions are estimated by the retirement systems' outside actuarial consultant to add about $2.3 billion more to the total unfunded liabilities. 

Bevin has said he plans to call a special legislative session this year to propose legislation aimed at tackling the problem with reforms of both the pension systems and the Kentucky tax code. The governor has not yet released details of those reform plans.

By Tom Loftus
The Courier-Journal

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