Pension oversight board recommends bevy of changes, but cash flow main issue for Ky. Retirement Systems

11/24/2014 09:36 PM

FRANKFORT — A slew of recommendations approved Monday by the Public Pension Oversight Board aim to help the Kentucky Retirement Systems’ bottom line, but KRS officials made clear the one thing they need — more money.

The KRS board of trustees is set to meet next week to discuss plan valuations for the end of fiscal year 2014, and the pension fund for most state workers, the Kentucky Employees Retirement System non-hazardous, will hit a new low mark with just 21 percent of the funds needed to cover current and future retirees, KRS Executive Director Bill Thielen told the oversight board.

The problem is beyond relying on investment returns to dig KERS non-hazardous from the financial hole, Thielen said. This fiscal year marked the first time in many years the state mades its full actuarially required contribution — the amount needed to keep KRS plans solvent and pay down $17 billion in unfunded liabilities — to KRS.

“We had a $182 million negative cash flow in that plan (KERS non-hazardous) again last fiscal year,” Thielen said. “So the funding level, you’ll find next week, is 21 percent — drastically low with a continuing negative cash flow in the plan. So it’s probably going to be at least a couple more years assuming we continue to meet our assumptions before that plan turns around and you begin to see a slight increase in the funding level.”

Of 13 recommendations tentatively approved by the oversight board, two dealt directly with securing additional funding for KERS non-hazardous. One, submitted by Sen. Jimmy Higdon, R-Lebanon, would seek financing to maintain the plan’s solvency while the other, filed by Rep. Brent Yonts, D-Greenville, and Sen. Joe Bowen, R-Owensboro, would support increased funding to KRS and particularly KERS non-hazardous to improve its cash flow issues.

Paul Guffey, president of Kentucky Public Retirees, said he was pleased to see KRS officials and the oversight board agree that KERS non-hazardous needs an influx of new money. He said he would support a dedicated revenue stream to fund pension obligations.

“We know that there needs to be much more, and if there’s enough money dumped into KERS non-hazardous, that would stop the negative cash flow,” Guffey told Pure Politics after the oversight board meeting.

“That would allow it to invest its money with a greater return. We also know if there was enough money put into KERS that would ameliorate some of the problems that it’s causing some of these other agencies around the state with the high rate of employer contribution.”

The oversight board also offered a handful of changes that may improve KRS’s funding levels, albeit not drastically.

Yonts, Bowen and Republican Rep. Brian Linder of Dry Ridge support curtailing pension “spiking,” which happens when an employer grants a large raise or generous amount of overtime to boost an employee’s pension benefits just before retirement.

Thielen said KRS has provided pension spiking data to the Legislative Research Commission, adding that the pension system will introduce its proposals “that may eliminate some of the problems with pension spiking” within the next two weeks.

Another recommendation, proposed by Yonts and Bowen, would give agencies ways to leave KRS voluntarily or involuntarily.

Yonts said he’s working on the legislation, which comes months after a bankruptcy judge ruled that Seven Counties Services was not considered a quasi-governmental agency and not beholden to KRS. The pension system has appealed the ruling, saying the decision allows the non-profit to leave some $90 million in pension obligations for other employers to cover.

The bill, Yonts said, will include a provision preventing employees unhappy with an employer’s decision to exit the system from suing the state.

“The version that I will be filing very shortly will be a bill that says if they want to pay their way out, they pay their way out based on what the system tells them is owed,” he said. “Secondly, it cuts the time period for payment if they don’t have the money to pay their way out from 30 years to 10 years because anything can happen in 30 years.”


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