Co-chairman of oversight board supports opening pension system's books to auditors
12/15/2014 07:55 PM
FRANKFORT — With the largest pension plan for state workers continuing to diminish, a co-chairman of the Public Pension Oversight Board says he’s not opposed to an audit by Auditor Adam Edelen’s office.
But Rep. Brent Yonts was quick to point out that the issues plaguing the Kentucky Retirement Systems won’t be resolved without one thing: cash, and a lot of it.
KRS Executive Director Bill Thielen presented year-end reports for the pension program before the Public Pension Oversight Board Monday, including the KRS board’s decision to lower various economic assumptions and thus put the General Assembly on the hook for higher retirement contributions in the years ahead.
KRS faces $17.8 billion in unfunded liabilities, more than half of which is attributed to the Kentucky Employees Retirement System pension plan for workers in non-hazardous positions that is just 21 percent funded with $9.1 billion in unfunded liabilities.
The KERS pension fund isn’t at risk of insolvency, but decades will pass before a major improvement in the plan’s funded status. Thielen said actuaries project the fund will hit bottom in about three years with a 14.9 percent funded ratio before climbing up to 32.4 percent in 20 years — if the state keeps its pledge to pay full actuarially required contributions and KRS meets its investment assumptions.
KRS’s investment assumptions are one reason the Kentucky Chamber of Commerce on Thursday called for Edelen’s office to conduct a performance audit on the pension agency.
Thielen had said such a review was unnecessary given the scrutiny KRS has faced in recent year, and he ticked off a number of audits, investigations and evaluations conducted on the agency.
The only major violation found in any of those investigations came when a former chief investment officer failed to disclose the use of a placement agent in an investment deal, Thielen said. That came from former Auditor Crit Luallen’s examination of the agency in 2011, which found former KRS Chief Investment Officer Adam Tosh did not report New York placement agent Glen Sergeon’s role in an investment opportunity. Tosh and Sergeon had worked together prior to Tosh’s stint in Kentucky, which ended with the former CIO’s resignation in 2010.
“Our staff has spent an enormous amount of resources complying and following up with these investigations, examinations, audits,” Thielen told the oversight board. “We don’t have any problem cooperating fully with them, and we’ll do just that, but I think it’s a costly exercise that is redundant in many respects.”
Redundant or not, Yonts said he’s not against opening KRS’s books for another audit, a sentiment he said he told Edelen recently.
“Having more people look at it (KRS) is probably a good thing,” Yonts, D-Greenville, said after the committee meeting. “They may have some great ideas that help resolve the problem, but ultimately the problem cannot be resolved without a pot full of money.”
Thielen noted that KRS paid about $120,000 for Luallen’s audit. The price tag may jump if Edelen employs actuaries to help in an audit if he decides to pursue one, but Yonts said $120,000 would be “a drop in the bucket” for KRS.
“Public auditors have a habit of uncovering things that need to be uncovered sometimes,” Yonts said, recalling Luallen’s audit of ARAMARK’s $12 million food service contract with the Kentucky Department of Corrections in 2010 and the number of inconsistencies noted in the final report.
“A lot of things were found and uncovered that maybe were not uncovered in a routine environment looking at things, so I think having an additional set of eyes looking over our shoulders and over their shoulders might be a good thing, but not something you’d want to do every year,” he continued.
The Public Pension Oversight Board also approved recommendations drafted at its Nov. 24 meeting, including a few that would direct more money into KRS and specifically the KERS non-hazardous fund. The list also includes some pension bills for consideration during next year’s legislative session.
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