Gov. Matt Bevin said Monday that his administration has selected financial advisory firm PFM Group to conduct a comprehensive audit of Kentucky’s troubled public pension system, which has an estimated $35 billion unfunded pension liability and one of the worst funding ratios in the country.
In a press release announcing the selection of PFM Group, Bevin said he was fulfilling his campaign promise to address the state’s “number one issue” with “the most exhaustive review ever conducted of Kentucky’s pension systems.”
“Reforming the state’s ailing pension systems is one of this administration’s top priorities,” said Bevin. “The findings that will come from this pension fund audit will accurately identify our actual pension liabilities. It is our intention to shine the antiseptic light of transparency on the country’s worst funded pension system and financially secure the pension system for generations to come. Kentucky taxpayers, retirees and current employees deserve nothing less.”
According to the press release, the audit will cover the Kentucky Teachers’ Retirement System, the Kentucky Retirement Systems and the Kentucky Judicial From Retirement System. The scope of the review will include:
- Overall solvency and liquidity analysis;
- Assessments of outstanding obligations under various actuarial assumptions;
- Critical review of past revenue and expenditures to identify reasons for the current financial status of the plans; and
- Analysis of nationwide best practices and future actions that might be considered to put the plans on a path toward long-term solvency.
Following through on Bevin’s proposed budget in January, the Kentucky General Assembly appropriated more than the actuarially recommended contribution (ARC) for state workers’ pension funds — a departure from most budgets over the last decade in which the state only kicked in roughly half of the ARC, widely viewed as a significant contributing factor to their rapidly declining funding ratios.
Responding to other criticisms of the investment strategies and lack of transparency from KRS, Bevin abolished and reorganized its board of directors through executive orders in June, removing chairman Tommy Elliott before his term had expired due to what he called a lack of effective leadership. Elliott sued to challenge Bevin’s orders, with Franklin Circuit Judge Phillip Shepherd ruling that the governor’s reorganization of the board was legal — though Elliott must remain as a director of the board, as he “was removed in such a manner as to cast aspersions on his character and conduct without affording him any due process of law.” After missing two subsequent KRS board meetings, Shepherd rebuked Elliott and further issued a temporary ruling that while he may remain on the board, he cannot vote for the time being.
Bevin’s attorneys had expressed their intent to appeal Shepherd’s ruling allowing Elliott to remain as a board member, but have not yet done so, with the 30-day window to appeal now rapidly approaching.