Kentucky Retirement Systems Overview

1
Kentucky Retirement Systems Overview

• Kentucky Association of County Treasures
• and Finance Officers
• April 10, 2008
• Mike Burnside
• Executive Director, Kentucky Retirement Systems

Updated April 4, 2008
2
Kentucky Retirement Systems Overview

• Background
• Blue Ribbon Commission
• HB 600 Pension Reform proposals

3
Kentucky Retirement Systems (KRS) Facts

• KRS administers retirement benefits for more than
  316,000 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)
• County Employees Retirement System (CERS)
• State Police Retirement System (SPRS)

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Current Status CERS

• Active members 94,983
• Non-Hazardous 84,290
• Hazardous 10,063
• Inactive members 56,125
• Retired members/beneficiaries 40,723
• Funding level (pension/insurance)
• Non-Hazardous 82.1 / 28.8
• Hazardous 74.2 / 31.2

5
Blue Ribbon Commission

• 24 members from public and private sectors
• Three main emphasis areas
• Financing Strategy
• Pension Benefits
• Health Insurance benefits
• Final report delivered to LRC on Jan 18, 2008

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Actuarial Basics

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

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2007 Unfunded Liabilities (in
billions of dollars)
2007
2006
Source June 30, 2007 Actuarial Valuation
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Unfunded Actuarial Liability

• Rising cost of healthcare
• Failure to contribute the full amount of the
  Annual Required Contribution
• Enhanced benefits in previous years
• Unfunded COLA
• Economic recession in 2000-2002
• GASB 43/45 changes

9
KRS Funding
National Average 24.3 KRS 20
National Average
National Average 63.7 KRS 64.0
National Average 12 KRS 16
10
Actuarially Recommended 2008-2009 Employer
Contributions (as a percent of payroll)
These rates comply with GASB 43/45 accounting
and reporting requirements. These are the
KERS/SPRS full funding rates and CERS Phase-in
rates recommended by the actuary and adopted by
the KRS Board.
Source June 30, 2007 Actuarial Valuation
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Blue Ribbon Commission

• 10-year phase in to fully-funded ARC
• Pre-fund portion of UAL with bonds
• Reduce or eliminate unfunded COLAs
• Lower cost benefit tier for new hires
• Extend number of years for full retirement
• Leverage PPO health plan into high, medium and
  low cost options
• Mandatory disease/case management

12
Pension Reform

• HB 600
• New tier of benefits for new employees effective
  July 1, 2008
• Defined benefit plan, graduated benefit factor
• Years Service at Retirement Benefit Factor
• 10 or less 1.1
• 10 20 1.3
• 20 26 1.5
• 26 - 30 1.75
• Additional years above 30 2.0

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HB 600 (continued)

• Rule of 85, minimum age 55, or 65/5
• Limit COLA to 1.5
• Health Insurance trust fund
• Increased penalty for early retirement (act.
  1)
• Increase vesting for health insurance to 15 years
• Limit sick leave credit to 12 months
• Service purchases include earliest eligible
  retirement date and actuarial cost of the COLA

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HB 600 (continued)

• Freezes CERS employer contribution levels for the
  biennium
• Non-Hazardous 15.58
• Pension 7.76
• Insurance 7.82
• Hazardous 31.99
• Pension 15.04
• Insurance 16.95

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Senate Committee Substitute

• New tier of benefits for new employees effective
  July 1, 2008
• Defined benefit plan, graduated benefit factor
• Years Service at Retirement Benefit Factor
• Up to 30 1.14
• Additional years above 30 1.75

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Senate Committee Substitute

• New tier of benefits for new employees effective
  July 1, 2008
• Annuity Savings Plan
• Employees contribute 1 of their salary
• Employers contribute
• 2 of annual, lump sum at completion of 5 years
  service
• 2 monthly for employees with 5-10 years service
• 2.25 monthly for employees with 10-20 years
  service
• 2.5 monthly for employees with gt 20 years
  service
• KRS manages investments, employee choice of
  index/risk level

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Senate Committee Substitute

• Rule of 87, minimum age 57, or 65/5
• No automatic COLA choose on retirement
• Health Insurance trust fund
• Early retirement penalty determined by actuary
• Limit sick leave credit to 12 months, employer
  pays
• Service purchases include earliest eligible
  retirement date and actuarial cost of the COLA

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Senate Committee Substitute

• Health Insurance
• Must satisfy 65/15, or 60/20 to get benefit
  (10/month/year plus 1.5 annually)
• Retire with 20 years but lt age 60?
• Eligible to purchase own coverage at full cost
  through GHIP
• Reemployed with state after retirement must
  take coverage through employer, not KRS

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Senate Committee Substitute

• Freezes CERS employer contribution levels for the
  biennium
• Non-Hazardous 11.08
• Pension 7.76
• Insurance 3.32
• Hazardous 27.49
• Pension 15.04
• Insurance 12.45

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Senate Committee Substitute

• Establish Local Government Employees Retirement
  System
• City and county employees
• Move classified school board employees to KERS

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Proposed Changes for Existing Employees

• New rules on retired and re-employ
• No second pension account
• More defined break in service
• COLA changes
• Service purchases include earliest possible
  retirement date
• Eliminate partial lump-sum payouts

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Pension Reform

• HB 600 passed floor 96-0 on Feb 28
• Senate Committee sub passed floor 36-3 on March
  12
• Now in Free Conference Committee

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Pension Reform

• Questions?