Kentucky Retirement Systems

Status Update
Presented to:

Kentucky General Assembly
Public Pension Oversight Board
January 27, 2014

Kentucky Retirement Systems (KRS) Facts
• KRS administers retirement benefits for over 340,000 state and local
government employees
– These employees include state employees, state police officers,
city and county employees, local agency employees, and
nonteaching staff of local school boards and regional universities.
• KRS administers three plans:
– Kentucky Employees Retirement System (KERS)
• KRS 61.510 to 61.705 and KY Administrative Regulations, Title 105

– County Employees Retirement System (CERS)
• KRS 78.510 to 78.852 and KY Administrative Regulations, Title 105

– State Police Retirement System (SPRS)
• KRS 16.505 to 16.652 and KY Administrative Regulations, Title 105
2

Plan Administration
• A thirteen-member Board of Trustees administers the
Systems:



Two trustees elected by KERS members
Three trustees elected by CERS members
One trustee elected by SPRS members
Six trustees appointed by the Governor
• One must be knowledgeable about the pension requirements on local governments
• Two must have at least 10 years of investment experience
• One each from lists of nominees submitted by the KY League of Cities, the KY Association
of Counties, and the KY School Boards Association

– The Secretary of the Kentucky Personnel Cabinet, ex officio

• The Board appoints an Executive Director to act as the Chief
Administrative Officer of the Board
• KRS reports for budget purposes to the Kentucky General
Assembly
3

Plan Administration
• The following standing committees are created in the bylaws of the
KRS Board of Trustees:







Administrative Appeals Committee
Disability Appeals Committee
Audit Committee
Investment Committee
Legislative and Budget Committee
Human Resources Committee
Retiree Health Committee
Legal, Compliance and Governance Committee

• The members and the chair of each standing committee are appointed
by the chair of the KRS Board of Trustees
• The chair of the KRS Board of Trustees or the Board may also create
ad hoc committees, as needed
4

Plan Administration – KRS Organizational Chart
Board of Trustees

Investment
Committee

Executive Director

Chief Investments
Officer

Audit Committee

Div Director

Exec. Assnt

Deputy
Chief Investments
Officer

Internal Audit

Admin Assnt II

Div Director
Private Equity

Div Director
Public Equity

General Counsel

Div Director
HR

Div Director
Absolute Return

Div Director
Real Return &
Real Estate

Officer

Controller

Div Director

Div Director

Accounting

Information Technology

Retiree Services
Payroll

Div Director
Div Director
Fixed Income

Chief Benefits

Chief Operations
Officer

Div Director

Planning & Constituent
Services

Communications

Div Director

Div Director

Procurement & Office
Services

Employer Reporting
Compliance & Education

Information Security Officer

Div Director
Disability& Death

Div Director
Membership
Support

Div Director
Member
Services

Div. Director
Retiree Health
Care

5

KRS Membership (2009 – 2013)
400,000
350,000
300,000
250,000

200,000
150,000
100,000
50,000

0
1/1/2009

1/1/2010

1/1/2011

1/1/2012

1/1/2013

Retired

6/30/2009
87,279

6/30/2010
81,765

6/30/2011
84,680

6/30/2012
87,472

6/30/2013
90,796

Inactive

101,552

92,379

95,025

107,353

112,462

Active

144,821

144,837

144,894

139,352

137,368

TOTAL

333,652*

318,981**

324,599**

334,177**

340,626**

* The data for years 2006 – 2009 reflects the number of accounts in each system.
** Beginning in 2010 each person is counted only once in the Membership by System report.

Source: June 30, 2013 Comprehensive Annual Financial Report (CAFR)

6

KRS Membership by System and Status
As of June 30, 2013
250,000

200,000

150,000

100,000

50,000

0

TOTAL

KERS Non-Hazardous

KERS Hazardous

CERS Non-Hazardous

CERS Hazardous

SPRS

Retired

37,240

2,312

44,164

5,840

1,240

Inactive

40,375

2,882

67,013

1,956

236

112,462

Active

40,710

4,057

82,631

9,069

901

90,796

TOTAL

118,325

9,251

193,808

16,865

2,377

Source: June 30, 2013 Comprehensive Annual Financial Report (CAFR)

137,368

340,626

7

KRS Current Assets and Benefit Payments
• As of June 30, 2013, the market value of KRS assets
(pension and insurance) was $14.67 billion
• KRS pays over $2 billion in pension and insurance
benefits each year
– 95% of benefit payments are delivered to Kentucky residents and
have a significant impact on the Kentucky economy

Source: June 30, 2013 Actuarial Valuation and June 30, 2013 Comprehensive Annual
Financial Report
8

How is KRS Funded?
• There are three (3) sources of funding for Kentucky
Retirement Systems:
– Employee Contributions:
• Set by statute
– Employer Contributions:
• Set annually by the KRS Board of Trustees based on an
independent actuarial valuation and recommendation
• Contribution paid by KERS and SPRS employers subject to the
appropriation amount set forth by the General Assembly in the
biennial budget legislation
– Return on Investments
• The KRS Investment Committee has the authority to make
investment decisions and hire external investment managers and
consultants
• KRS utilizes internal investment staff, external investment
managers, and independent investment consultants to conduct
the investment program
9

How is KRS Funded?
The Majority of KRS Funding Comes from Return on Investments

Employee
12%

Employer
20%

Investment Income
68%

10

Public Pension Fund Revenue Sources
United States, 1982 to 2011
Employer
Contributions
28%
Investments
58%

Employee
Contributions
14%

Sources: US Census Bureau and the National Association of State Retirement Administrators
(NASRA Issue Brief: Public Pension Plan Investment Return Assumptions, updated December
2013). The US Census Bureau first began reporting public pension fund revenue data in 1982.
11

Employee Contributions
– Account for 12% of KRS funding
– Set by statute as a percentage of creditable compensation

System

Participation Date
PRIOR to
September 1, 2008

Participation Date
ON or AFTER
September 1, 2008*

KERS Non-Hazardous

5%

6%

KERS Hazardous

8%

9%

CERS Non-Hazardous

5%

6%

CERS Hazardous

8%

9%

SPRS

8%

9%

* Members with a participation date on or after September 1, 2008 contribute an additional 1% of
creditable compensation, which is deposited into the KRS Insurance Fund.
12

Employer Contributions
• Set by Board of Trustees based on actuarial analysis
and recommendations
• Employer Contribution Rate Consists of:
– Pension Contribution
• Normal Cost = The cost of projected benefits allocated to the current
year (the year the valuation is conducted)
• UAL Payment = The present value of benefits earned to date that are not
covered by current plan assets

– Insurance Contribution
• Created by 1978 Legislature
• Made a contractual obligation by 1988 Legislature; taken out of inviolable
contract for employees hired on or after July 1, 2003
• In 2006, GASB 43 and 45 changed the accounting and reporting
requirements related to Other Post Employment Benefits (OPEB) for public
retirement systems.
– KRS must now recognize and report on an accrual basis the cost of retiree
health insurance benefits over the working life of the employee
13

Actuarially Required versus Actual
FY 2013 - 2014 Employer Contributions
• KERS and SPRS employer contribution rates are subject to approval by
the Kentucky General Assembly in biennial budget legislation
• CERS employer rates are set by the Board of Trustees
System

Required Contribution

Actual Contribution

KERS Non-Hazardous

45.28%*

26.79%

KERS Hazardous

28.84%*

32.21%

CERS Non-Hazardous

18.89%

18.89%**

CERS Hazardous

35.70%

35.70%**

SPRS

96.52%*

71.15%

* Required contribution rates prior to applying the House Bill 1 (2008 Legislative Session) phase-in percentages set forth in
KRS 61.565(5) .
** The CERS rates reflect the ten-year phase-in of the insurance portion of the rate required by KRS 61.565(6).
14

Actuarially Required 2014-2015 Employer Contributions
(as a percent of payroll)

Insurance
Fund

Actuarial
Required
Rates from
2013
Valuation

Phase-in
Rates*

System

Normal
Pension
Cost

Admin.
Expense

Payment
On
Pension
UAL

KERS
(Non-Hazardous)

3.48%

0.65%

26.71%

7.93%

38.77%

-

KERS
(Hazardous)

5.24%

0.55%

10.58%

9.97%

26.34%

-

SPRS

8.05%

0.41%

45.44%

53.90%

75.76%

-

CERS
(Non-Hazardous)

3.56%

0.79%

8.40%

5.35%

18.10%

17.67%*

CERS
(Hazardous)

6.09%

0.26%

14.38%

14.97%

35.70%

34.31%*

* The CERS rates reflect the ten-year phase-in of the insurance portion of the rate required by KRS 61.565(6).

Source: June 30, 2013 Actuarial Valuation

15

Employer Contribution Rates By System Since 1990
KERS Non-Hazardous
Required Rate
Fiscal Year
1990-1991
1991-1992
1992-1993*
1993-1994*
1994-1995
1995-1996*
1996-1997
1997-1998
1998-1999
1999-2000
2000-2001
2001-2002
2002-2003*
2003-2004*
2004-2005*
2005-2006*
2006-2007*
2007-2008*
2008-2009*^
2009-2010*^
2010-2011*
2011-2012*
2012-2013*
2013-2014*
2014-2015
2015-2016

Pension
5.86%
5.88%
6.69%
5.54%
5.43%
5.60%
5.74%
4.80%
3.77%
2.58%
1.45%
0.00%
0.34%
2.86%
5.11%
7.85%
10.68%
15.55%
16.54%
18.96%
21.77%
24.30%
28.03%
32.57%
30.84%
30.84%

Insurance
1.59%
1.77%
1.97%
3.12%
3.13%
3.15%
3.15%
4.09%
4.26%
5.45%
4.44%
5.89%
5.55%
4.67%
5.18%
5.77%
6.45%
32.82%
12.06%
12.33%
16.81%
16.41%
16.52%
12.71%
7.93%
7.93%

Budgeted Rate
Total
7.45%
7.65%
8.66%
8.66%
8.56%
8.75%
8.89%
8.89%
8.03%
8.03%
5.89%
5.89%
5.89%
7.53%
10.29%
13.62%
17.13%
48.37%
28.60%
31.29%
38.58%
40.71%
44.55%
45.28%
38.77%
38.77%

Pension
5.86%
5.88%
5.68%
4.53%
5.43%
5.41%
5.74%
4.80%
3.77%
2.58%
1.45%
0.00%
0.34%
1.22%
2.92%
3.39%
4.83%
5.47%
5.79%
6.65%
9.58%
11.59%
14.86%
17.29%
30.84%
30.84%

Insurance
1.59%
1.77%
1.97%
3.12%
3.13%
3.15%
3.15%
4.09%
4.26%
5.45%
4.44%
5.89%
3.42%
4.67%
2.97%
2.50%
2.92%
3.03%
4.22%
4.96%
7.40%
8.23%
8.75%
9.50%
7.93%
7.93%

Total
7.45%
7.65%
7.65%
7.65%
8.56%
8.56%
8.89%
8.89%
8.03%
8.03%
5.89%
5.89%
3.76%
5.89%
5.89%
5.89%
7.75%
8.50%
10.01%
11.61%
16.98%
19.82%
23.61%
26.79%
38.77%
38.77%

* Rate Reduction
^ The Board adopted rate for fiscal years beginning July 1, 2008 and July 1, 2009 differ from the valuation rate (i.e., the actuarially required rate-ARC).
This is due to the fact that the actuary used a blended rate of return (assumed rate of return) of 4.50% as required by GASB 43/45, in determining the
required contribution rate during the valuation process. However, for funding purposes, it was assumed by the Board that the General Assembly would
fully fund the ARC; therefore, a "full funding" rate, using the normal assumed rate of 7.75%, was developed. The KRS Board adopted the "full funding"
16
rate for FY 2009 and FY 2010.

Employer Contribution Rates By System Since 1990
KERS Hazardous
Required Rate
Fiscal Year

Budgeted Rate

Pension

Insurance

Total

Pension

Insurance

Total

1990-1991

9.31%

5.74%

15.05%

9.31%

5.74%

15.05%

1991-1992

8.88%

6.17%

15.05%

8.88%

6.17%

15.05%

1992-1993*

10.81%

6.74%

17.55%

8.31%

6.74%

15.05%

1993-1994*

10.48%

7.38%

17.86%

7.67%

7.38%

15.05%

1994-1995

10.56%

7.41%

17.97%

10.56%

7.41%

17.97%

1995-1996*

10.59%

7.46%

18.05%

10.51%

7.46%

17.97%

1996-1997

10.41%

7.46%

17.87%

10.41%

7.46%

17.87%

1997-1998

7.84%

10.03%

17.87%

7.84%

10.03%

17.87%

1998-1999

8.26%

10.40%

18.66%

8.26%

10.40%

18.66%

1999-2000*

8.51%

10.40%

18.91%

8.26%

10.40%

18.66%

2000-2001

8.09%

10.75%

18.84%

8.09%

10.75%

18.84%

2001-2002

6.18%

12.66%

18.84%

6.18%

12.66%

18.84%

2002-2003*

6.57%

12.27%

18.84%

6.57%

11.03%

17.60%

2003-2004

7.37%

11.47%

18.84%

7.37%

11.47%

18.84%

2004-2005*

7.26%

12.21%

19.47%

7.03%

11.81%

18.84%

2005-2006*

8.52%

13.07%

21.59%

7.43%

11.41%

18.84%

2006-2007*

9.28%

14.04%

23.32%

8.75%

13.25%

22.00%

2007-2008*

10.20%

36.91%

47.11%

9.79%

14.46%

24.25%

2008-2009*

10.84%

23.94%

34.78%

9.79%

14.56%

24.35%

2009-2010*

11.98%

23.56%

35.54%

9.89%

14.80%

24.69%

2010-2011*

14.11%

20.26%

34.37%

10.72%

15.40%

26.12%

2011-2012*

14.11%

19.73%

33.84%

12.33%

16.65%

28.98%

2012-2013*

16.16%

19.73%

35.89%

13.41%

16.38%

29.79%

2013-2014*

17.00%

11.84%

28.84%

14.89%

17.32%

32.21%

2014-2015

16.37%

9.97%

26.34%

16.37%

9.97%

26.34%

2015-2016

16.37%

9.97%

26.34%

16.37%

9.97%

26.34%

* Rate Reduction

17

Employer Contribution Rates By System Since 1990
SPRS
Fiscal Year
1990-1991
1991-1992
1992-1993*
1993-1994*
1994-1995
1995-1996*
1996-1997
1997-1998
1998-1999
1999-2000*
2000-2001
2001-2002
2002-2003*
2003-2004
2004-2005*
2005-2006*
2006-2007*
2007-2008*
2008-2009*^
2009-2010*^
2010-2011*
2011-2012*
2012-2013*
2013-2014*
2014-2015
2015-2016

Pension
11.39%
10.09%
11.76%
7.73%
7.64%
8.84%
12.37%
9.00%
5.51%
7.36%
3.44%
0.00%
4.21%
2.64%
8.49%
14.49%
20.64%
28.95%
32.39%
35.23%
35.74%
39.80%
47.48%
53.35%
53.90%
53.90%

Required Rate
Insurance
8.92%
9.48%
10.08%
14.11%
14.14%
14.21%
14.21%
17.58%
17.90%
17.90%
18.14%
21.58%
17.37%
18.94%
19.59%
20.34%
21.66%
91.05%
27.75%
26.64%
49.89%
54.83%
55.93%
43.17%
21.86%
21.86%

Total
20.31%
19.57%
21.84%
21.84%
21.78%
23.05%
26.58%
26.58%
23.41%
25.26%
21.58%
21.58%
21.58%
21.58%
28.08%
34.83%
42.30%
120.00%
60.14%
61.87%
85.63%
94.63%
103.41%
96.52%
75.76%
75.76%

Pension
11.39%
10.09%
9.49%
5.46%
7.64%
7.57%
12.37%
9.00%
5.51%
5.51%
3.44%
0.00%
0.00%
2.64%
6.52%
8.98%
12.44%
14.23%
15.28%
16.81%
21.44%
26.55%
33.24%
39.50%
53.90%
53.90%

Budgeted Rate
Insurance
8.92%
9.48%
10.08%
14.11%
14.14%
14.21%
14.21%
17.58%
17.90%
17.90%
18.14%
21.58%
17.37%
18.94%
15.06%
12.60%
13.06%
13.77%
14.79%
16.27%
24.10%
25.58%
30.43%
31.65%
21.86%
21.86%

Total
20.31%
19.57%
19.57%
19.57%
21.78%
21.78%
26.58%
26.58%
23.41%
23.41%
21.58%
21.58%
17.37%
21.58%
21.58%
21.58%
25.50%
28.00%
30.07%
33.08%
45.54%
52.13%
63.67%
71.15%
75.76%
75.76%

* Rate Reduction
^ The Board adopted rate for fiscal years beginning July 1, 2008 and July 1, 2009 differ from the valuation rate (i.e., the actuarially required rate-ARC).
This is due to the fact that the actuary used a blended rate of return (assumed rate of return) of 4.50% as required by GASB 43/45, in determining the
required contribution rate during the valuation process. However, for funding purposes, it was assumed by the Board that the General Assembly would
fully fund the ARC; therefore, a "full funding" rate, using the normal assumed rate of 7.75%, was developed. The KRS Board adopted the "full funding"
18
rate for FY 2009 and FY 2010.

Contribution Rates
FY 2015 & FY 2016
KERS Non-Hazardous
Contribution for

FY 2015 - 2016
% of Payroll

1. Total Actuarially Required Rate – PENSION

30.84%

2. Total Actuarially Required Rate – INSURANCE
3. Total Actuarially Required Rate – COMBINED

7.93%
38.77%

KERS Hazardous
Contribution for

FY 2015 - 2016
% of Payroll

1. Total Actuarially Required Rate – PENSION

16.37%

2. Total Actuarially Required Rate – INSURANCE
3. Total Actuarially Required Rate - COMBINED

9.97%
26.34%

State Police Retirement System
Contribution for

FY 2015 - 2016
% of Payroll

1. Total Actuarially Required Rate – PENSION

53.90%

2. Total Actuarially Required Rate – INSURANCE
3. Total Actuarially Required Rate - COMBINED

21.86%
75.76%
19

KERS Non-Hazardous Members
(SB 2 Provisions - 7.3% Crediting Rate)
Fiscal Year
Ending
June 30

Contribution Rate
Projected Payroll
Pension Insurance

Total

2013

14.86%

8.75%

23.61%

2014

17.29

9.5

2015

30.49

2016

Total
Contribution

Actuarial Accrued Liability
Pension

Insurance

Total

$1,667,560,090

$393,710,937

$11,182,142,032

$4,280,089,633

$15,462,231,665

26.79

1,716,555,278

459,865,159

11,361,048,136

3,125,330,157

14,486,378,293

7.99

38.48

1,771,115,026

681,525,062

11,475,723,561

2,198,777,298

13,674,500,859

31.12

7.83

38.95

1,829,201,987

712,474,174

11,592,533,067

2,287,608,582

13,880,141,649

2017

31.26

7.74

39.00

1,890,194,524

737,175,864

11,711,276,199

2,373,539,284

14,084,815,483

2018

31.55

7.69

39.24

1,954,085,285

766,783,066

11,831,844,539

2,456,435,143

14,288,279,682

2019

31.73

7.62

39.35

2,021,514,461

795,465,940

11,953,623,433

2,537,361,519

14,490,984,952

2020

31.88

7.54

39.42

2,092,852,533

825,002,469

12,076,530,452

2,616,770,570

14,693,301,022

2021

32.03

7.46

39.49

2,168,170,168

856,210,399

12,199,619,549

2,693,843,347

14,893,462,896

2022

32.16

7.39

39.55

2,247,612,412

888,930,709

12,323,749,170

2,769,319,664

15,093,068,834

2023

32.29

7.30

39.59

2,331,059,673

922,866,525

12,449,774,459

2,843,362,892

15,293,137,351

2024

32.41

7.23

39.64

2,418,270,892

958,602,582

12,577,230,961

2,915,399,704

15,492,630,665

2025

32.52

7.15

39.67

2,509,399,557

995,478,804

12,705,357,560

2,985,039,999

15,690,397,559

2026

32.64

7.10

39.74

2,604,786,204

1,035,142,037

12,833,302,687

3,050,775,343

15,884,078,030

2027

32.76

7.04

39.80

2,704,568,917

1,076,418,429

12,961,322,868

3,112,368,512

16,073,691,380

2028

32.88

6.99

39.87

2,808,418,766

1,119,716,562

13,089,337,368

3,168,499,110

16,257,836,478

2029

33.00

6.94

39.94

2,916,693,675

1,164,927,454

13,217,232,438

3,218,314,946

16,435,547,384

2030

33.13

6.89

40.02

3,030,244,702

1,212,703,930

13,343,117,326

3,259,812,232

16,602,929,558

2031

33.26

6.86

40.12

3,149,857,099

1,263,722,668

13,466,350,097

3,292,545,530

16,758,895,627

2032

33.38

6.81

40.19

3,276,531,432

1,316,837,983

13,586,983,825

3,314,547,370

16,901,531,195

20

Contribution Rates
FY 2015 & FY 2016
CERS Non-Hazardous
Contribution for
1. Total Actuarially Required Rate – PENSION

FY 2015 - 2016
% of Payroll
12.75%

2. Total Actuarially Required Rate – INSURANCE

5.35%

3. Total Actuarially Required Rate – COMBINED

18.10%

4. Total Actuarially Required Rate – COMBINED with INSURANCE PHASE-IN

17.67%*

CERS Hazardous
Contribution for

FY 2015 - 2016
% of Payroll

1. Total Actuarially Required Rate – PENSION

20.73%

2. Total Actuarially Required Rate – INSURANCE

14.97%

3. Total Actuarially Required Rate – COMBINED

35.70%

3. Total Actuarially Required Rate – COMBINED with INSURANCE PHASE-IN

34.31%*

* The Combined Rate reflects the ten-year phase-in of the health insurance portion of the rate, as required by KRS 61.565(6).
21

CERS Non-Hazardous Members
(SB 2 Provisions - 7.3% Crediting Rate)
Fiscal Year
Ending
June 30

Contribution Rate
Pension

Insurance

Projected Payroll
Total

2013

12.62%

6.93%

19.55%

2014

13.74

5.15

2015

12.95

2016

Total
Contribution

Actuarial Accrued Liability
Pension

Insurance

Total

$2,260,762,874

$441,979,142

$8,918,085,025

$3,073,973,205

$11,992,058,230

18.89

2,312,061,847

436,712,370

9,139,567,695

2,370,771,288

11,510,338,983

5.40

18.35

2,369,158,739

434,740,629

9,463,142,084

2,535,028,593

11,998,170,677

12.70

5.64

18.34

2,430,848,763

445,817,663

9,787,686,266

2,695,846,394

12,483,532,660

2017

12.64

5.89

18.53

2,496,333,891

462,570,670

10,111,223,784

2,851,995,810

12,963,219,594

2018

12.82

6.13

18.95

2,565,765,341

486,212,532

10,433,025,223

3,002,813,255

13,435,838,478

2019

12.81

5.13

17.94

2,639,069,408

473,449,052

10,752,706,087

3,148,318,860

13,901,024,947

2020

12.79

4.95

17.74

2,716,918,951

481,981,422

11,069,317,453

3,288,227,365

14,357,544,818

2021

12.78

4.83

17.61

2,799,964,913

493,073,821

11,381,538,301

3,421,722,581

14,803,260,882

2022

12.76

4.71

17.47

2,887,247,671

504,402,168

11,689,406,972

3,549,178,583

15,238,585,555

2023

12.75

4.59

17.34

2,978,689,464

516,504,753

11,993,343,030

3,670,876,705

15,664,219,735

2024

12.73

4.48

17.21

3,075,425,140

529,280,667

12,291,052,834

3,786,531,911

16,077,584,745

2025

12.74

4.37

17.11

3,177,699,431

543,704,373

12,581,376,983

3,896,024,917

16,477,401,900

2026

12.73

4.27

17.00

3,285,506,927

558,536,178

12,863,047,607

3,998,741,254

16,861,788,861

2027

12.72

4.16

16.88

3,398,817,543

573,720,401

13,135,808,398

4,094,353,159

17,230,161,557

2028

12.72

4.08

16.80

3,518,128,886

591,045,653

13,398,831,150

4,182,179,110

17,581,010,260

2029

12.72

3.99

16.71

3,644,209,844

608,947,465

13,651,554,566

4,261,265,801

17,912,820,367

2030

12.73

3.92

16.65

3,778,066,173

629,048,018

13,892,265,110

4,331,155,241

18,223,420,351

2031

12.72

3.83

16.55

3,920,489,215

648,840,965

14,121,198,991

4,391,524,548

18,512,723,539

2032

12.72

3.77

16.49

4,071,878,654

671,452,790

14,339,819,658

4,443,039,964

18,782,859,622

22

Actuarial Basics
• Funding Level
– Ratio of Actuarial Assets to Actuarial Liabilities
– Measure of the plan’s financial soundness
– Provides a “snapshot” of the plan’s ability to meet
liabilities (benefits) earned to date
– Actuarial funding level is based on a 5-year
smoothing method, i.e. 20% of market gains/losses
are recognized each year over a 5-year period

23

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
KERS Non-Hazardous PENSION
60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

2008

2009

2010

2011

2012

2013

Actuarial

52.5%

45.0%

38.3%

33.3%

27.3%

23.2%

Market

49.9%

33.6%

31.8%

31.7%

26.2%

24.1%

Source: June 30, 2013 Comprehensive Annual Financial Report

24

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
KERS Non-Hazardous INSURANCE
30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

2008

2009

2010

2011

2012

2013

Actuarial

11.1%

11.9%

10.6%

10.6%

14.3%

23.4%

Market

10.6%

8.1%

8.3%

10.1%

13.8%

23.9%

Source: June 30, 2013 Comprehensive Annual Financial Report

25

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
KERS Hazardous PENSION
90.0%
80.0%
70.0%
60.0%
50.0%

40.0%
30.0%
20.0%
10.0%
0.0%

2008

2009

2010

2011

2012

2013

Actuarial

81.3%

74.5%

73.1%

70.8%

66.1%

64.5%

Market

78.4%

57.7%

64.5%

70.8%

63.5%

65.5%

Source: June 30, 2013 Comprehensive Annual Financial Report

26

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
KERS Hazardous INSURANCE
120.0%

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

2008

2009

2010

2011

2012

2013

Actuarial

53.2%

61.4%

63.7%

65.1%

89.9%

96.2%

Market

49.7%

44.7%

55.0%

63.3%

86.7%

97.1%

Source: June 30, 2013 Comprehensive Annual Financial Report

27

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
CERS Non-Hazardous PENSION
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%

2008

2009

2010

2011

2012

2013

Actuarial

78.5%

71.4%

65.6%

63.1%

60.7%

60.1%

Market

74.4%

54.7%

57.0%

62.5%

58.8%

61.6%

Source: June 30, 2013 Comprehensive Annual Financial Report

28

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
CERS Non-Hazardous INSURANCE
80.0%
70.0%

60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%

2008

2009

2010

2011

2012

2013

Actuarial

32.6%

39.6%

40.9%

46.6%

63.8%

66.6%

Market

30.9%

29.2%

34.7%

47.2%

60.7%

66.9%

Source: June 30, 2013 Comprehensive Annual Financial Report

29

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
CERS Hazardous PENSION
80.0%
70.0%

60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%

2008

2009

2010

2011

2012

2013

Actuarial

72.9%

67.9%

65.5%

62.2%

58.1%

56.7%

Market

68.5%

51.2%

56.4%

61.6%

55.8%

58.6%

Source: June 30, 2013 Comprehensive Annual Financial Report

30

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
CERS Hazardous INSURANCE
70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

2008

2009

2010

2011

2012

2013

Actuarial

34.7%

40.9%

41.4%

46.8%

60.7%

62.1%

Market

32.6%

30.3%

35.0%

47.0%

57.7%

62.2%

Source: June 30, 2013 Comprehensive Annual Financial Report

31

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
State Police Retirement System PENSION
70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

2008

2009

2010

2011

2012

2013

Actuarial

59.8%

54.8%

49.7%

45.0%

40.1%

37.1%

Market

57.5%

42.6%

43.3%

44.1%

39.1%

38.2%

Source: June 30, 2013 Comprehensive Annual Financial Report

32

Actuarial Basics
Summary of Actuarial Funding Level (2008 – 2013)
State Police Retirement System INSURANCE
70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

2008

2009

2010

2011

2012

2013

Actuarial

27.9%

33.9%

27.9%

28.2%

37.3%

61.3%

Market

27.4%

25.7%

24.0%

29.1%

37.6%

64.2%

Source: June 30, 2013 Comprehensive Annual Financial Report

33

Actuarial Basics
• Unfunded Actuarial Liability (UAL)
– Difference between current value of assets and
liabilities
– Represents the unfunded liability on benefits
already earned by employees and retirees
– UAL is amortized over a 30 year or shorter period,
much like a home mortgage
– The amortized payment is a part of the employer
contribution rate
34

KERS/SPRS 2013 Unfunded Liabilities
(in billions of dollars)
2013

2012

System

Pension

Insurance

Combined

Pension

Insurance

Combined

KERS Non-Hazardous

$8.75

$1.63

$10.38

$8.26

$2.68

$10.94

KERS Hazardous

$0.28

$0.02

$0.30

$0.26

$0.04

$0.30

SPRS

$0.41

$0.09

$0.50

$0.39

$0.21

$0.60

TOTAL

$9.44

$1.74

$11.18

$8.91

$2.93

$11.84

Source: June 30, 2013 Actuarial Valuation
35

CERS 2013 Unfunded Liabilities
(in billions of dollars)
2013

2012

System

Pension

Insurance

Combined

Pension

Insurance

Combined

CERS Non-Hazardous

$3.74

$0.82

$4.56

$3.59

$0.86

$4.45

CERS Hazardous

$1.32

$0.54

$1.86

$1.26

$0.54

$1.80

TOTAL

$5.06

$1.36

$6.42

$4.85

$1.40

$6.25

Source: June 30, 2013 Actuarial Valuation
36

What Caused the Increase in Unfunded Liabilities?
1.

Reductions to Employer Contribution Rates in KERS and SPRS

2.

Retiree COLA increases not pre-funded

3.

2008-2009 Market Losses

4.

Cost Inflation for Retiree Insurance

5.

Compliance with GASB 43/45 (2006)

6.

Demographic losses

37

KERS Unfunded Liability Attribution
Actuary Prepared Attribution of Unfunded Liability: KERS Non-Hazardous Pension Plan
Unfunded
Actuarial
Fiscal Year
Liability
(Beg. Of Year)

Investment
(G) / L

COLA

Employer Demographic
Actuarial
Benefits
Contribution
& Salary
Assumptions
Shortfall
Experience

Other

Unfunded
Actuarial
Liability
(End of Year)

2007

3,601

-55

212

0

0

100

84

147

4,089

2008

4,089

12

245

0

0

179

128

158

4,811

2009

4,811

308

205

-45

-12

198

131

269

5,864

2010

5,864

324

102

0

0

216

-37

326

6,795

2011

6,795

243

113

0

0

221

-129

212

7,455

2012

7,455

325

117

0

0

236

-53

180

8,260

Total Increase

1,157

994

-45

-12

1,149

123

1,293

4,659

Attribution %

24.5%

21.1%

24.4%

2.6%

27.4%

100.0%

Chart prepared by Cavanaugh & McDonald Consulting LLC

38

CERS Unfunded Liability Attribution
Actuary Prepared Attribution of Unfunded Liability: CERS Non-Hazardous Pension Plan

Fiscal Year

Unfunded
Actuarial
Liability
(Beg. Of Year)

Investment
(G) / L

Benefits

Actuarial
Assumptions

Demographic &
Salary
Experience

Other

Unfunded
Actuarial
Liability
(End of Year)

COLA

2007

1,017

-53

118

0

0

60

51

1,192

2008

1,192

28

129

0

0

83

141

1,573

2009

1,573

344

101

0

44

36

165

2,262

2010

2,262

354

55

0

0

7

235

2,912

2011

2,912

230

62

0

0

35

49

3,288

2012

3,288

341

71

0

0

-71

-37

3,592

Total Increase

1,243

536

0

44

149

604

2,576

Attribution %

48.3%

20.8%

0.0%

1.7%

5.8%

23.4%

100.0%

Chart prepared by Cavanaugh & McDonald Consulting LLC

39

Cost Inflation for Retiree Insurance
KRS Retiree Premiums 2005 - 2014
$800.00

$699.28
$700.00
$625.68

$638.16

$650.22

$594.00

$600.00
$545.00
$484.00

$488.00

$500.00

$457.00
$400.00

$410.00
$331.30

$372.00

$310.00

$329.00

$329.00

$338.00

$338.00

$355.00

$300.00
$198.31

$200.00

$212.39

$100.00

$0.00
2005

2006

2007

2008

2009
Medicare

2010

2011

2012

2013

2014

Non-Medicare

40

Cost Inflation for Retiree Insurance
Medicare and Non-Medicare Rate Differences from Previous Year by Percentage
2006 - 2014
40.00%

20.00%

15.98%
5.78%

5.58%

11.19%

0.00%
0.00%
-6.87%

-6.78%

2.66%

8.25%

0.00%

5.06%
4.79%

1.96%

7.02%
1.85%

4.57%

6.63%

-20.00%

-40.00%

-60.00%

-80.00%
-87.59%
-100.00%

2006

2007

2008

2009

2010

2011

2012

2013

2014

Medicare

-6.87%

5.78%

0.00%

2.66%

0.00%

4.79%

4.57%

-87.59%

6.63%

Non-Medicare

15.98%

-6.78%

5.58%

11.19%

8.25%

5.06%

1.96%

1.85%

7.02%

41

Benefit Financing
 Basic Retirement Funding Equation

C+I=B+E
C
I
B
E

=
=
=
=

Contributions
Investment Income
Benefits Paid
Expenses (administration)
42

Combined Funded Status
June 30, 2013

June 30, 2012

Fund
Pension

Insurance

Combined

Pension

Insurance

Combined

KERS Non-Hazardous

23.2%

23.4%

23.2%

27.3%

14.3%

24.5%

KERS Hazardous

64.5%

96.2%

74.9%

66.1%

89.9%

74.1%

CERS Non-Hazardous

60.1%

66.6%

61.5%

60.7%

63.8%

61.3%

CERS Hazardous

57.7%

62.1%

59.1%

58.1%

60.7%

58.9%

SPRS

37.1%

61.3%

43.3%

40.1%

37.3%

39.1%
43

Pension Results

44

Comments on Pension Valuations
• Market value investment return was greater than
anticipated for all Funds
• Actuarial value investment return was less than
expected for all Funds
• Decline in funded ratios for all Funds
• Per statute, amortization period reset to 30 years
• Ad Hoc COLAs have been suspended

45

Pension Funding Results
KERS
June 30, 2013

June 30, 2012

Non-Hazardous

Hazardous

Non-Hazardous

Hazardous

Total Normal Cost Rate

8.48%

13.24%

8.72%

13.42%

Less Member Rate

5.00%

8.00%

5.00%

8.00%

Employer Normal Cost Rate

3.48%

5.24%

3.72%

5.42%

Administrative Expenses

0.65%

0.55%

0.54%

0.67%

Rate to Amortize UAL

26.71%

10.58%

28.31%

10.91%

Total Employer Contribution Rate

30.84%

16.37%

32.57%

17.00%

Unfunded Accrued Liability
($ millions)

$8,750.5

$278.3

$8,259.7

$255.5

23.2%

64.5%

27.3%

66.1%

30

30

25

25

Funded Ratio
Amortization Period

46

2013 Pension Gain/Loss Analysis
($ Millions)
KERS Non-Hazardous
Losses
Gains

Source

(165.5)

Investment Income

81.9

(112.6)

Service Retirement

(26.8)

Disability Retirement

16.2

Mortality

72.2

(13.2)

($180)

($120)

($60)

Withdrawal
New Members

69.1
($240)

Pay Increases

$0

$60

Other

$120
47

2013 Pension Gain/Loss Analysis
($ Millions)
Losses

KERS Hazardous
Gains

Source

(16.0)

Investment Income

6.3

Pay Increases

(16.7)

Service Retirement

(3.0)

Disability Retirement

2.3

Mortality

16.6

(3.4)

New Members

(9.4)
($24)

($16)

Withdrawal

Other

($8)

$0

$8

$16

$24
48

Pension Funding Results
CERS
June 30, 2013

June 30, 2012

Non-Hazardous

Hazardous

Non-Hazardous

Hazardous

Total Normal Cost Rate

8.56%

14.09%

8.92%

14.15%

Less Member Rate

5.00%

8.00%

5.00%

8.00%

Employer Normal Cost Rate

3.56%

6.09%

3.92%

6.15%

Administrative Expenses

0.79%

0.26%

0.76%

0.29%

Rate to Amortize UAL

8.40%

14.38%

9.06%

15.33%

Total Employer Contribution Rate

12.75%

20.73%

13.74%

21.77%

Unfunded Accrued Liability
($ millions)

$3,741.8

$1,322.5

$3,592.3

$1,262.6

60.1%

57.7%

60.7%

58.1%

30

30

25

25

Funded Ratio
Amortization Period

49

2013 Pension Gain/Loss Analysis
($ Millions)
CERS Non-Hazardous
Losses
Gains

Source
Investment Income

(165.0)

Pay Increases

77.1
(227.3)

Service Retirement

77.5

Disability Retirement

(0.8)

Mortality

56.7

Withdrawal

(12.3)

New Members

124.5
($300)

($200)

($100)

$0

$100

Other

$200
50

2013 Pension Gain/Loss Analysis
($ Millions)
CERS Hazardous
Gains

Losses

Investment Income

(59.2)

Pay Increases

25.5
(46.3)

Service Retirement

(6.7)

Disability Retirement

(1.7)

Mortality

38.9

(7.4)

($60)

($40)

($20)

Withdrawal
New Members

(2.2)
($80)

Source

Other

$0

$20

$40

$60
51

Pension Funding Results
SPRS
June 30, 2013

June 30, 2012

Total Normal Cost Rate

16.05%

15.98%

Less Member Rate

8.00%

8.00%

Employer Normal Cost Rate

8.05%

7.98%

Administrative Expenses

0.41%

0.16%

Rate to Amortize UAL

45.44%

45.21%

Total Employer Contribution Rate

53.90%

53.35%

Unfunded Accrued Liability ($ millions)

$409.8

$387.9

Funded Ratio

37.1%

40.1%

30

25

Amortization Period

52

2013 Pension Gain/Loss Analysis
($ Millions)
State Police Retirement System
Losses
Gains

Investment Income

(9.3)

Pay Increases

4.4
(8.2)

Service Retirement

(0.2)

Disability Retirement

(1.0)

Mortality

4.4

Withdrawal

(0.1)

New Members

2.7
($12)

Source

($8)

($4)

$0

$4

Other

$8
53

Insurance Results

54

Comments on Insurance Valuation




Market value investment return was greater than anticipated for all Funds
Actuarial value investment return was less than expected for all Funds
Increase in funded ratios for all Funds
Per statute, amortization period reset to 30 years
KERS Non-Hazardous and SPRS reflect 7.75% fully-funded interest rate
(previously used 4.50%)
• Investment rate of return assumption is now 7.75% for all Funds
• The total unfunded actuarial accrued liability has been reduced by $1,014.4
million for KERS Non-Hazardous and $117.0 million for SPRS due the
change in discount rate from 4.50% to 7.75%

55

Insurance Funding Results
KERS
June 30, 2013

June 30, 2012

Non-Hazardous

Hazardous

Non-Hazardous

Hazardous

Total Normal Cost Rate

2.89%

9.58%

6.06%

10.17%

Less Member Rate

0.20%

0.31%

0.18%

0.24%

Employer Normal Cost Rate

2.69%

9.27%

5.88%

9.93%

Administrative Expenses

0.26%

0.14%

0.31%

0.24%

Rate to Amortize UAL

4.98%

0.56%

6.52%

1.67%

Total Employer Contribution Rate

7.93%

9.97%

12.71%*

11.84%

$1,631.2

$14.7

$2,679.2

$39.0

23.4%

96.2%

14.3%

89.9%

30

30

25

25

Unfunded Accrued Liability
($ millions)
Funded Ratio
Amortization Period

* “Full funding” contribution rate = 8.70%
56

Insurance Funding Results
CERS
June 30, 2013

June 30, 2012

Non-Hazardous

Hazardous

Non-Hazardous

Hazardous

Total Normal Cost Rate

3.55%

9.07%

3.63%

9.50%

Less Member Rate

0.23%

0.17%

0.19%

0.13%

Employer Normal Cost Rate

3.32%

8.90%

3.44%

9.37%

Administrative Expenses

0.20%

0.15%

0.24%

0.14%

Rate to Amortize UAL

1.83%

5.92%

2.16%

6.51%

Total Employer Contribution Rate

5.35%

14.97%

5.84%

16.02%

Unfunded Accrued Liability
($ millions)

$815.6

$544.6

$857.9

$535.8

Funded Ratio

66.6%

62.1%

63.8%

60.7%

30

30

25

25

Amortization Period

57

Insurance Funding Results
SPRS
June 30, 2013

June 30, 2012

Total Normal Cost Rate

12.03%

25.52%

Less Member Rate

0.12%

0.10%

Employer Normal Cost Rate

11.91%

25.42%

Administrative Expenses

0.41%

0.42%

Rate to Amortize UAL

9.54%

17.33%

Total Employer Contribution Rate

21.86%

43.17%*

Unfunded Accrued Liability ($ millions)

$86.0

$209.5

Funded Ratio

61.3%

37.3%

30

25

Amortization Period
* “Full funding” contribution rate = 23.35%

58

KENTUCKY RETIREMENT
SYSTEMS

Questions and Comments

59

CONTACT INFORMATION

KENTUCKY RETIREMENT SYSTEMS
1260 Louisville Road
Frankfort, KY 40601
https://kyret.ky.gov
In Frankfort 502-696-8800 Or toll free 1-800-928-4646
60

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