Kentucky Pension Lowers Return Assumption

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The board of the Kentucky State Retirement System (KRS) voted on Thursday to follow the recommendation of a consultant and lower the system’s assumed rate of return from 7.5 percent to 6.75 percent.

The lower rate puts a heavier burden on Kentucky to make full annual contributions – a task the state has struggled with in the past.

The nationwide average is about 7.7 percent, according to the Center for Retirement Research.

More from the State Journal:

Todd Green of Cavanaugh Macdonald recommended the board drop its assumed rate of return from 7.5 percent to 6.75 percent for both pension systems.

With a 19 percent unfunded liability for the non-hazardous pension system at about a $10 billion liability, the change in rate will drop the funding ratio to 17.69 percent and increase the systems’ liability to $10.9 billion.

The change puts the employer, Kentucky, on the hook for an employer contribution rate from 38.93 percent to 40.24 percent.

[…]

Green remarked the changes and their impact plainly to the board.

“Lowering the assumed rate of return means less investment income to pay benefits, which means the benefits stay the same but the amount of investment income is going to be reduced,” Green said. “So, contributions are going to have to be increased to offset that reduction.”

KRS Executive Director Bill Thielen said he felt the changes should be effective for July 1, 2015 so they can be used for the valuation for 2016 that would, in turn, affect the contribution rate for 2018.

The change also applies to the state Police Retirement System (SPRS), which is about 31 percent funded.

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