krs overview- public pension oversight board (january 27 2014) 2

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

5

Plan Administration – KRS Organizational Chart

Board of Trustees

Investment Committee

Chief Investments Officer

Deputy Chief Investments

Officer

Div Director Private Equity

Div Director Public Equity

Div Director Fixed Income

Div Director Absolute Return

Div Director Real Return &

Real Estate

Executive Director

General Counsel Div Director

HR

Chief Operations Officer

Controller

Accounting

Div Director

Information Technology

Div Director

Planning & Constituent Services

Div Director

Communications

Div Director

Procurement & Office Services

Div Director

Employer Reporting Compliance & Education

Information Security Officer

Chief Benefits

Officer

Div Director

Retiree Services Payroll

Div Director

Disability& Death

Div Director

Membership Support

Div Director Member Services

Div. Director Retiree Health

Care

Exec. Assnt

Admin Assnt II

Audit Committee

Div Director

Internal Audit

KRS Membership (2009 – 2013)

TOTAL 333,652* 318,981** 324,599** 334,177** 340,626**

6

* 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)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013

6/30/2009 6/30/2010 6/30/2011 6/30/2012 6/30/2013

Retired 87,279 81,765 84,680 87,472 90,796

Inactive 101,552 92,379 95,025 107,353 112,462

Active 144,821 144,837 144,894 139,352 137,368

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

TOTAL 118,325 9,251 193,808 16,865 2,377 340,626

7

TOTAL

112,462

90,796

137,368

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

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

Active 40,710 4,057 82,631 9,069 901

0

50,000

100,000

150,000

200,000

250,000

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

8

Source: June 30, 2013 Actuarial Valuation and June 30, 2013 Comprehensive Annual

Financial Report

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

10

Employee

12%

Employer

20%

Investment Income

68%

Public Pension Fund Revenue Sources

United States, 1982 to 2011

11

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.

Employer Contributions

28%

Employee Contributions

14%

Investments 58%

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%

12

* 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.

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

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%

14

* 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).

• 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

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

System

Normal

Pension

Cost

Admin.

Expense

Payment

On

Pension

UAL

Insurance

Fund

Actuarial

Required

Rates from

2013

Valuation

Phase-in

Rates*

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%*

15 Source: June 30, 2013 Actuarial Valuation

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

Employer Contribution Rates By System Since 1990

16

* 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"

rate for FY 2009 and FY 2010.

KERS Non-Hazardous

Required Rate Budgeted Rate

Fiscal Year Pension Insurance Total Pension Insurance Total

1990-1991 5.86% 1.59% 7.45% 5.86% 1.59% 7.45%

1991-1992 5.88% 1.77% 7.65% 5.88% 1.77% 7.65%

1992-1993* 6.69% 1.97% 8.66% 5.68% 1.97% 7.65%

1993-1994* 5.54% 3.12% 8.66% 4.53% 3.12% 7.65%

1994-1995 5.43% 3.13% 8.56% 5.43% 3.13% 8.56%

1995-1996* 5.60% 3.15% 8.75% 5.41% 3.15% 8.56%

1996-1997 5.74% 3.15% 8.89% 5.74% 3.15% 8.89%

1997-1998 4.80% 4.09% 8.89% 4.80% 4.09% 8.89%

1998-1999 3.77% 4.26% 8.03% 3.77% 4.26% 8.03%

1999-2000 2.58% 5.45% 8.03% 2.58% 5.45% 8.03%

2000-2001 1.45% 4.44% 5.89% 1.45% 4.44% 5.89%

2001-2002 0.00% 5.89% 5.89% 0.00% 5.89% 5.89%

2002-2003* 0.34% 5.55% 5.89% 0.34% 3.42% 3.76%

2003-2004* 2.86% 4.67% 7.53% 1.22% 4.67% 5.89%

2004-2005* 5.11% 5.18% 10.29% 2.92% 2.97% 5.89%

2005-2006* 7.85% 5.77% 13.62% 3.39% 2.50% 5.89%

2006-2007* 10.68% 6.45% 17.13% 4.83% 2.92% 7.75%

2007-2008* 15.55% 32.82% 48.37% 5.47% 3.03% 8.50%

2008-2009*^ 16.54% 12.06% 28.60% 5.79% 4.22% 10.01%

2009-2010*^ 18.96% 12.33% 31.29% 6.65% 4.96% 11.61%

2010-2011* 21.77% 16.81% 38.58% 9.58% 7.40% 16.98%

2011-2012* 24.30% 16.41% 40.71% 11.59% 8.23% 19.82%

2012-2013* 28.03% 16.52% 44.55% 14.86% 8.75% 23.61%

2013-2014* 32.57% 12.71% 45.28% 17.29% 9.50% 26.79%

2014-2015 30.84% 7.93% 38.77% 30.84% 7.93% 38.77%

2015-2016 30.84% 7.93% 38.77% 30.84% 7.93% 38.77%


17 * Rate Reduction

KERS Hazardous



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%


18

* 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"

rate for FY 2009 and FY 2010.

SPRS



1990-1991 11.39% 8.92% 20.31% 11.39% 8.92% 20.31%

1991-1992 10.09% 9.48% 19.57% 10.09% 9.48% 19.57%

1992-1993* 11.76% 10.08% 21.84% 9.49% 10.08% 19.57%

1993-1994* 7.73% 14.11% 21.84% 5.46% 14.11% 19.57%

1994-1995 7.64% 14.14% 21.78% 7.64% 14.14% 21.78%

1995-1996* 8.84% 14.21% 23.05% 7.57% 14.21% 21.78%

1996-1997 12.37% 14.21% 26.58% 12.37% 14.21% 26.58%

1997-1998 9.00% 17.58% 26.58% 9.00% 17.58% 26.58%

1998-1999 5.51% 17.90% 23.41% 5.51% 17.90% 23.41%

1999-2000* 7.36% 17.90% 25.26% 5.51% 17.90% 23.41%

2000-2001 3.44% 18.14% 21.58% 3.44% 18.14% 21.58%

2001-2002 0.00% 21.58% 21.58% 0.00% 21.58% 21.58%

2002-2003* 4.21% 17.37% 21.58% 0.00% 17.37% 17.37%

2003-2004 2.64% 18.94% 21.58% 2.64% 18.94% 21.58%

2004-2005* 8.49% 19.59% 28.08% 6.52% 15.06% 21.58%

2005-2006* 14.49% 20.34% 34.83% 8.98% 12.60% 21.58%

2006-2007* 20.64% 21.66% 42.30% 12.44% 13.06% 25.50%

2007-2008* 28.95% 91.05% 120.00% 14.23% 13.77% 28.00%

2008-2009*^ 32.39% 27.75% 60.14% 15.28% 14.79% 30.07%

2009-2010*^ 35.23% 26.64% 61.87% 16.81% 16.27% 33.08%

2010-2011* 35.74% 49.89% 85.63% 21.44% 24.10% 45.54%

2011-2012* 39.80% 54.83% 94.63% 26.55% 25.58% 52.13%

2012-2013* 47.48% 55.93% 103.41% 33.24% 30.43% 63.67%

2013-2014* 53.35% 43.17% 96.52% 39.50% 31.65% 71.15%

2014-2015 53.90% 21.86% 75.76% 53.90% 21.86% 75.76%

2015-2016 53.90% 21.86% 75.76% 53.90% 21.86% 75.76%

Contribution Rates

FY 2015 & FY 2016

19

KERS Non-Hazardous

Contribution for FY 2015 - 2016

% of Payroll

1. Total Actuarially Required Rate – PENSION 30.84%

2. Total Actuarially Required Rate – INSURANCE 7.93%

3. Total Actuarially Required Rate – COMBINED 38.77%

KERS Hazardous


% of Payroll



3. Total Actuarially Required Rate - COMBINED 26.34%

State Police Retirement System


% of Payroll



3. Total Actuarially Required Rate - COMBINED 75.76%

20

KERS Non-Hazardous Members

(SB 2 Provisions - 7.3% Crediting Rate)

Fiscal Year

Ending

June 30

Contribution Rate

Projected Payroll Total

Contribution

Actuarial Accrued Liability

Pension Insurance Total Pension Insurance Total

2013 14.86% 8.75% 23.61% $1,667,560,090 $393,710,937 $11,182,142,032 $4,280,089,633 $15,462,231,665

2014 17.29 9.5 26.79 1,716,555,278 459,865,159 11,361,048,136 3,125,330,157 14,486,378,293

2015 30.49 7.99 38.48 1,771,115,026 681,525,062 11,475,723,561 2,198,777,298 13,674,500,859

2016 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

Contribution Rates

FY 2015 & FY 2016

21

CERS Non-Hazardous


% of Payroll




4. Total Actuarially Required Rate – COMBINED with INSURANCE PHASE-IN 17.67%*

CERS Hazardous


% of Payroll




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).

22

CERS Non-Hazardous Members

(SB 2 Provisions - 7.3% Crediting Rate)

Fiscal Year

Ending

June 30

Contribution Rate Projected Payroll

Total

Contribution

Actuarial Accrued Liability

Pension Insurance Total Pension Insurance Total

2013 12.62% 6.93% 19.55% $2,260,762,874 $441,979,142 $8,918,085,025 $3,073,973,205 $11,992,058,230

2014 13.74 5.15 18.89 2,312,061,847 436,712,370 9,139,567,695 2,370,771,288 11,510,338,983

2015 12.95 5.40 18.35 2,369,158,739 434,740,629 9,463,142,084 2,535,028,593 11,998,170,677

2016 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

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

24

Summary of Actuarial Funding Level (2008 – 2013)

Source: June 30, 2013 Comprehensive Annual Financial Report

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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

KERS Non-Hazardous PENSION

Actuarial Basics

25



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%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

KERS Non-Hazardous INSURANCE

Actuarial Basics

26



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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

KERS Hazardous PENSION

Actuarial Basics

27



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%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

KERS Hazardous INSURANCE

Actuarial Basics

28



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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

CERS Non-Hazardous PENSION

Actuarial Basics

29



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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

CERS Non-Hazardous INSURANCE

Actuarial Basics

30



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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

CERS Hazardous PENSION

Actuarial Basics

31



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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

CERS Hazardous INSURANCE

Actuarial Basics

32



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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

State Police Retirement System PENSION

Actuarial Basics

33



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%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

State Police Retirement System INSURANCE

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)

35

Source: June 30, 2013 Actuarial Valuation

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

CERS 2013 Unfunded Liabilities (in billions of dollars)

36

Source: June 30, 2013 Actuarial Valuation

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

What Caused the Increase in Unfunded Liabilities?

37

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

KERS Unfunded Liability Attribution

38 Chart prepared by Cavanaugh & McDonald Consulting LLC

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

Fiscal Year

Unfunded

Actuarial

Liability

(Beg. Of Year)

Investment

(G) / L COLA Benefits

Actuarial

Assumptions

Employer

Contribution

Shortfall

Demographic

& Salary

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%

CERS Unfunded Liability Attribution

39 Chart prepared by Cavanaugh & McDonald Consulting LLC

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

Fiscal Year

Unfunded

Actuarial

Liability

(Beg. Of Year)

Investment

(G) / L COLA Benefits

Actuarial

Assumptions

Demographic &

Salary

Experience

Other

Unfunded

Actuarial

Liability

(End of Year)

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%

Cost Inflation for Retiree Insurance

40

$331.30 $310.00

$329.00 $329.00 $338.00 $338.00 $355.00

$372.00

$198.31 $212.39

$410.00

$488.00

$457.00

$484.00

$545.00

$594.00

$625.68 $638.16 $650.22

$699.28

$0.00

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

KRS Retiree Premiums 2005 - 2014

Medicare Non-Medicare

Cost Inflation for Retiree Insurance

41

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%

-6.87%

5.78%

0.00% 2.66% 0.00% 4.79% 4.57%

-87.59%

6.63%

15.98%

-6.78%

5.58% 11.19% 8.25%

5.06% 1.96% 1.85%

7.02%

-100.00%

-80.00%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

Medicare and Non-Medicare Rate Differences from Previous Year by Percentage 2006 - 2014

42

Benefit Financing

C + I = B + E

Contributions

Investment Income

Benefits Paid

Expenses (administration)

=

=

=

=

C

I

B

E

Basic Retirement Funding Equation

43

Combined Funded Status

Fund June 30, 2013 June 30, 2012

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%

44

Pension Results

45

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

46

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

Funded Ratio 23.2% 64.5% 27.3% 66.1%

Amortization Period 30 30 25 25

47

2013 Pension Gain/Loss Analysis ($ Millions)

Losses Gains Source

69.1

(13.2)

72.2

16.2

(26.8)

(112.6)

81.9

(165.5)

($240) ($180) ($120) ($60) $0 $60 $120

KERS Non-Hazardous

Investment Income

Pay Increases

Service Retirement

Disability Retirement

Mortality

Withdrawal

New Members

Other

48


Losses Gains Source

(9.4)

(3.4)

16.6

2.3

(3.0)

(16.7)

6.3

(16.0)

($24) ($16) ($8) $0 $8 $16 $24

KERS Hazardous

Investment Income

Pay Increases

Service Retirement


Mortality

Withdrawal

New Members

Other

49


CERS

June 30, 2013 June 30, 2012



Less Member Rate 5.00% 8.00% 5.00% 8.00%






($ millions) $3,741.8 $1,322.5 $3,592.3 $1,262.6

Funded Ratio 60.1% 57.7% 60.7% 58.1%


50


Losses Gains Source

CERS Non-Hazardous

Investment Income

Pay Increases

Service Retirement


Mortality

Withdrawal

New Members

Other 124.5

(12.3)

56.7

(0.8)

77.5

(227.3)

77.1

(165.0)

($300) ($200) ($100) $0 $100 $200

51


Losses Gains Source

CERS Hazardous

Investment Income

Pay Increases

Service Retirement


Mortality

Withdrawal

New Members

Other (2.2)

(7.4)

38.9

(1.7)

(6.7)

(46.3)

25.5

(59.2)

($80) ($60) ($40) ($20) $0 $20 $40 $60

52


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%

Amortization Period 30 25

53


Losses Gains Source

State Police Retirement System

Investment Income

Pay Increases

Service Retirement


Mortality

Withdrawal

New Members

Other 2.7

(0.1)

4.4

(1.0)

(0.2)

(8.2)

4.4

(9.3)

($12) ($8) ($4) $0 $4 $8

54

Insurance Results

55

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%

56

KERS

June 30, 2013 June 30, 2012



Less Member Rate 0.20% 0.31% 0.18% 0.24%




Total Employer Contribution Rate 7.93% 9.97% 12.71%* 11.84%


($ millions) $1,631.2 $14.7 $2,679.2 $39.0

Funded Ratio 23.4% 96.2% 14.3% 89.9%


Insurance Funding Results

* “Full funding” contribution rate = 8.70%

57

CERS

June 30, 2013 June 30, 2012



Less Member Rate 0.23% 0.17% 0.19% 0.13%






($ millions) $815.6 $544.6 $857.9 $535.8

Funded Ratio 66.6% 62.1% 63.8% 60.7%



58

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%

Amortization Period 30 25


* “Full funding” contribution rate = 23.35%

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

https://kyret.ky.gov/



krs overview- public pension oversight board (january 27 2014) 2

Documents

krs board of trustees

board krs reports

director retiree health

member board of trustees

governance committee

state employees

chief administrative

ky administrative regulations