The bad news: Ky. pension funds continue to drain; The good news: Insurance changes drop total debt

12/06/2012 10:35 AM

The retirement funds under the Kentucky Retirement Systems umbrella continue to hemorrhage money, but health insurance changes approved by the KRS board this week will help delay financial doom — for now.

But the money the largest fund has in its account relative to all its current and future obligations to state workers who retire is getting dangerously low.

The Kentucky Employee Retirement System for most state workers (those who aren’t hazardous duty workers) has dropped to 27.3 percent funded from 33.3 percent funded in 2011, according to the latest annual accounting report made public Wednesday. The Kentucky Employee Retirement System covers more than 80,000 current and retired non-hazardous employees.

The funding ration that’s considered actuarially sound is 80 percent.

The big culprits for the rapidly dropping funding ratio have been Kentucky legislatures and governors repeatedly shorting the amount the state should have paid into the fund over the last decade and the investments underperforming high estimates.

The County Employee Retirement System funds are in better shape because counties and cities are required to make their annual payments into the fund and haven’t shorted them the way the state government has.

Here are the funding ratio for the KRS funds:

FUND ………. Pension Funding Ratio in ’12 ………. Funding Ratio in ’11
KERS Non-Haz. …….. 27.30% ……………. 33.33%
KERS Hazardous ……… 66.06% ……………. 70.81%
CERS Non-Haz. ………. 60.69% …………….. 63.13%
CERS Hazardous ………. 58.05% ……………. 62.24%
State Police …………….. 40.11% …………….. 45.02%

Thus, the debt hole for pensions keeps getting deeper. The total unfunded liability — how much the system would owe to current and future retirees compared to the assets it has — has grown to nearly $14 billion dollars in the KRS funds. (That doesn’t count the Kentucky Teacher Retirement System, Kentucky Judicial Retirement or Kentucky Legislative Retirement funds).

FUND (Pensions) ……. Unfunded Liability in ’12 ……. Unfunded Liability in ’11

KERS Non-Haz. ……… $8.26 billion ………………. $7.46 billion
KERS Hazardous ……… $0.26 billion ………………. $0.21 billion
CERS Non-Haz. ………. $3.59 billion ……………….. $3.29 billion
CERS Hazardous ………. $1.26 billion ……………….. $1.08 billion
State Police …………….. $0.39 billion ……………….. $0.35 billion
TOTAL …………………….$13.76 billion ……………… $12.39 billion

The Bit of Good News

However, the KRS board did take one key step to reverse the total debt of the system by changing the health insurance set-up for retirees.

The board approved moving from a self-insured scheme to hiring Humana as its health insurance provider.

“The fully insured plan is significantly less expensive than the self-insured plan would have been,” said Bill Thielen, executive director of the KRS.

Just in the County Employees Retirement System that move accounted for an $86 million swing for counties.

Starting Jan. 1, 2013, that will take a $2.5 billion chunk out of the system’s total unfunded liability.

Health Ins. ….. Unfunded Liability in ’12…….. Unfunded Liability in ’11
KERS Non-Haz. ……… $2.68 billion ………………. $3.83 billion
KERS Hazardous ……… $0.04 billion ………………. $0.18 billion
CERS Non-Haz. ………. $0.86 billion ……………….. $1.64 billion
CERS Hazardous ………. $0.54 billion ……………….. $0.88 billion
State Police …………….. $0.21 billion ……………….. $0.31 billion
TOTAL …………………….$4.33 billion ……………… $6.84 billion

So the total unfunded liability for pensions and health insurance in the KRS funds in 2012 is $18.1 billion dollars — down from $19.2 billion in 2011.

In short, the debt continues to grow for what the funds owe in pension checks, but thanks to the changes in health insurance, the systems’ total debt got smaller.

About Ryan Alessi

Ryan Alessi joined cn|2 in May 2010 as senior managing editor and host of Pure Politics. He is now pursuing an advanced degree in non-fiction writing from Murray State University and is a regular contributor to Pure Politics. Ryan has covered politics for more than 14 years, including seven years as a reporter for the Lexington Herald-Leader. Ryan can be reached at purepolitics@twcable.com or @mycn2 on Twitter.

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