FRANKFORT, Ky. (WTVQ) – The Public Pension Oversight Advisory Board, co-chaired by Representative Jim DuPlessis of Elizabethtown, has reviewed changes to the Teacher’ Retirement System that could put additional pressure on the state budget.
“The state’s contribution to public pensions account for almost 15 percent of our Commonwealth’s $12 billion state budget and we have an obligation to ensure these funds are used best for the benefit of fund participants and taxpayers,” DuPlessis said. “This month’s meeting was particularly timely, as the TRS board just adopted a new set of actuarial assumptions that increase the unfunded liability of TRS by $3 billion. This increase will likely require more than $200 million more in additional state funding each year.”
The committee heard from Beau Barnes, Deputy Executive Secretary and General Counsel for TRS. Experience studies are conducted are a standard practice for evaluating actuarial assumptions and fiscal projections within a retirement system.
Assumptions are developed by looking towards trends and collecting and analyzing data from a variety of private and government sources.
According to Barnes, most large public pension plans perform an actuarial experience study at least every five years. Further, the studies allow for evaluations of the gain versus loss ratio to determine if assumptions are accurate.
This allows the public pension administrators to adjust their request for funds from the state budget.
The experience study showed significant changes to the actuarial assumption. One change lowered the investment return assumption for all plans from 7.5 percent to 7.1 percent. Another change was lowering the payroll growth assumption to 2.7 percent. Yet another change adjusted the mortality rate of teacher retirement participants to reflect increased longevity.
DuPlessis asked Barnes for an explanation of the significant increase in the fiscal impact of sick leave, “Is there a change in trend? Are educators saving up their sick leave to increase their pension payments?”
Barnes explained, “Studies have shown that the majority of teachers retiring with a sick leave payout are the higher paid teachers and administration, resulting in a higher payout of sick leave when they retire.”
Currently, the payout is $50 million per year.
The liability in sick leave added to the currently liability is approximately $120 million. Additionally, Barnes explained superintendents try to increase awareness that teachers can save their sick leave until retirement in an effort to prevent absenteeism of teachers.
House Budget Committee Chair, Representative Jason Petrie of Elkton posed several questions for Barnes, including specifically requesting a 30-year actuarial projection.
An actuarial projection of necessary funding is required by state law, but was not provided to the committee. Petrie requested projection to compare it to projections received last year.
Barnes replied, “These are long-term assumptions that are driven over a 30-year period. I don’t think we have a 30-year projection.”
After Petrie pressed for more information, Barnes told committee members that TRS would make the projection available to the committee as soon as possible.
By law, the General Assembly is required to fund a percentage of the TRS payroll. The General Assembly voluntarily over appropriated $551 million above the required amount to make sure the fund remains financially sound.
For full details of the meeting, please visit legislature.ky.gov or follow the link here for the meeting materials. To watch the full meeting, visit the Legislative Research Commission YouTube page here.