Funding Ky.'s pension system could be more of a moving target with changing variables

05/27/2014 05:30 PM

Legislators are learning that in the world of pensions the cost to the state is in constant flux.

Unlike buying a home where there’s a fixed price mortgage with a set number of payments, the public pension system with it’s 300,000 current and future retirees will need constant tweaks, which could mean the state will have to pay even more into the system down the road.

A five year assessment of the system — known as an experience study — showed that some tweaks are needed for the plans to meet assumptions made by actuaries who predict financial risk and uncertainty .

The experience study showed that actuaries should revise some their data, for instance, to anticipate that retirees will live even longer than estimated now. That would cause a chain reaction in the calculations, which will likely increase the bill to taxpayers in future state budgets, pension officials told the pension oversight committee on Tuesday.

Actuaries would like to change their data sets on mortality rates, age of retirement as well as economic assumptions like investment returns and price inflation.

The retirement system’s board will review the recommendations from the actuaries over the coming months. Changes aren’t necessarily urgent because the General Assembly just set the next two-year $20 billion spending plan, which funded the required contributions for the next two years using numbers from previous studies.

However, even if there is time to find more money for the next payment into the pension system legislators on the oversight board were surprised to learn the numbers needed to fund the plan could soon change.

Rep. Brent Yonts, D-Greenville, questioned Tom Cavanaugh, the retirement system’s consulting actuary, about the discrepancy to the bottom line at Tuesday’s meeting.

The margins will likely take another year to figure out as the retirement systems board takes a look a recommendations, said Bill Thielen the executive director of the retirement system.

Another recommendation is for actuaries look at economic assumptions every two years rather than every five years in the experience study.

Thielen told Pure Politics after the meeting that he expects that’s something that will be approved by the board.

Legislators also asked Thielen and KRS investment officer David Peden about the performance of their investments, and why they don’t perform at the level of other funds — including the Kentucky Teacher’s Retirement System.


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