According to two reports published on the website of the Kentucky Retirement Systems, despite its various public pension plans yielding positive growth on investment returns over the past year, they collectively lost over $400 million in market value assets — with most of those losses coming from the Kentucky Employees Retirement System non-hazardous plan for state workers, the most underfunded public pension plan in the country.
The KRS monthly performance update ending June 30 showed a 2 percent growth in investment returns over the past year for its five pension plans, a far cry from its growth of over 15 percent at this point last year. Despite this modest growth, the market value assets of these pension plans collectively dropped to $11.5 billion, a loss of $414 million since the end of June in 2014.
According to a monthly analysis from KRS actuary consultant RV Kuhns, the bulk of these assets lost over the past year came from KERS, the state workers’ plan that can afford it the least. RV Kuhns found that assets for the KERS pension plan dropped to $2.26 billion at the end of June, a decrease of nearly $300 million from a year earlier. Though total liabilities were not indicated in either report, this likely means the asset to liability funding ratio of KERS has now dropped to under 20 percent.
A study released by the same consultant in May showed that even if KERS investments had 7.5 percent growth and the state kicked in 100 percent of the actuarially required contribution (ARC) every year, the funding ratio of KERS would continue to fall to dangerous levels over the next decade, with a 5 to 8 percent chance of fully depleting its assets over the next 20 years.
KRS officials also have noted the danger of total KERS assets dropping under $1.3 billion, as they would begin converting investment holdings into cash in order to pay out benefits, further depleting investment returns and making itself almost totally reliant on ever-increasing employer contributions from the state.
Just like the also-troubled Kentucky Teachers’ Retirement System pension plan, the funding ratio of KERS plunged over the past decade due to the state repeatedly making insufficient ARC payments. Kentucky’s General Assembly passed legislation in 2013 that was supposed to fix the troubled plans within KRS, moving new hires to a hybrid pension plan and promising to pay 100 percent of the ARC in the future. Despite making full employer payments to KRS plans since the passage of this legislation, KERS assets have continued their steep decline.
State retiree Jim Carroll, who runs the Kentucky Government Retirees group, says that the state of KERS is a “horrific situation, and I just hope that the leadership — the gubernatorial candidates and the legislature — will come to the conclusion that they can’t wait for (the 2013 legislation) to fix the problem.”
Carroll says his group is trying to convince legislators to fund above 100 percent of the ARC payment to avert a pay-as-you-go situation or the implosion of the KERS plan, though “that can’t be done with available revenue, that’s just not a realistic possibility. So we’re hoping that a legislator will step forward with a dedicated revenue source that will provide new revenue that can be used toward the KERS payment.”
Earlier this year, another consultant hired by KRS examined how a $5 billion pension obligation bond would shore up the solvency of KERS, though KRS executive director Bill Thielen did not endorse lobbying for such a proposal before the general assembly, saying it is not without risk and likely to lack political support. A similar $3.3 billion bond for the also-underfunded KTRS was proposed in this year’s legislative session and passed the House, before stalling in the Senate. Gov. Steve Beshear assembled a task force this year to create a strategy for funding KTRS, but not KERS.