As bad as Kentucky’s pension prospects were, it turns out there was still room for further decline.
As of June 30, Kentucky state government’s primary pension fund had only 12.9 percent of the money it’s expected to need to make future payments to tens of thousands of retirees, compared to 13.6 percent a year earlier, according to data presented Thursday to the Kentucky Retirement Systems Board of Trustees.
The pension fund — managed by the KRS board within the Kentucky Employees Retirement System — had about $2 billion in assets and $15.6 billion in liabilities on June 30, actuarial advisers told the trustees for their annual update.
The KERS (Non Hazardous) fund is considered one of the nation’s worst-off public pension funds, largely due to many years of inadequate contributions by state leaders and unreasonable expectations about investment returns and payroll growth.
Starting in Fiscal Year 2017, Gov. Matt Bevin and the legislature committed to fully paying the fund’s annual recommended contributions in the state budget. This has meant diverting hundreds of millions of dollars from other spending items, such as education, social services and infrastructure.
While that full funding has slowed the growth of Kentucky’s pension debt, the advisers said the additional money was offset by a 15 percent spike in retirements in Fiscal Year 2018 — due to controversial changes proposed to the public pension systems — and a steady drop in government employment in Kentucky. KRS contributions are tied to payroll, so fewer public workers is a problem.
It’s possible the funding level for the state pension fund could fall as low as 11 percent next year before rebounding and slowly, over several decades, climbing back up again, said KRS board chairman David Harris, an investment manager who was appointed two years ago by Bevin.
But that depends on future governors and legislatures sticking with the plan for full funding, Harris added. In this fiscal year, he said, the state’s roughly $11 billion General Fund will pay $2.4 billion into the various public pension systems. And that sum will have to rise over time, he said.
“The contributions now coming in are about equal to the benefits going out,” Harris said. “The fact is that funding is critical. … All of this is caused by the fact that from 2000 to 2015, we didn’t put enough money in. It’s not investment related. It’s funding, funding, funding.”