Pension Oversight Board recommends changes to Legislature

General Assembly will consider when it convenes in two weeks

FRANKFORT, Ky. (WTVQ/Press Release) – The state’s Public Pension Oversight Board had its final discussion this week of Kentucky’s public pension systems which remain remain a key public policy focus, notably the Kentucky Employee Retirement System (KERS) Non-hazardous and the Kentucky Teachers Retirement System (KTRS).

In the last several years, policy reforms have been enacted to alleviate structural financial strains. These include the 2021 Legislative Session’s House Bill 8 that changed the method for calculating KERS-Non Hazardous employer contributions from a percent of payroll model to a fixed allocation funding method and HB 258 which established a new tier of benefits for future members of KTRS.

Providing sufficient funding to meet the actuarially determined contributions in the 2022-2024 state budget topped the list of recommendations from the board. The recommendation was formally made by board co-chairman, state Sen. Jimmy Higdon.

“We are going to encourage the General Assembly to ensure sufficient funding is provided to fully fund actuarial determined contributions in the upcoming budget,” Higdon said. “We’ve been very successful in doing that since 2014.”

Other policy recommendations approved by the board included:

• Technical cleanup of statutes relating to the judicial retirement system.
• Exemption of anti-spiking provisions for overtime pay directly attributable to local government emergencies in which the Governor deploys the Kentucky National Guard.
• Requiring state systems to perform an actuarial investigation of economic assumptions once every two years rather than once every five years while retaining a review of demographic assumptions once every five years.

The full list of proposed recommendations from the board can be found HERE.

The PPOB agenda also included a discussion of a summary of the submissions received by the Legislative Research Commission (LRC) from actuarial firms following a Request for Information (RFI) to determine the potential for having an actuarial audit of the state retirement systems conducted. This would be the inaugural actuarial audit for PPOB. The purpose of the RFI was to permit greater public discussion during PPOB meetings, determine the pool of interested actuarial firms, seek proposed solutions on how to accomplish the task, and provide information to assist in tailoring the scope of work.

Consensus derived from the summary was that a level 1 full-scope actuarial audit of the systems could be completed over a six-month period. According to the report, a level 1 full-scope audit is the most thorough way to evaluate the reliability of the assumptions.

When asked by Higdon if she was comfortable with the feedback from the actuarial firms as it relates to the encouragement of conducting a level 1 full-scope audit, Senior Legislative Committee Analyst, Ms. Jennifer Hanzs, stated that she felt the firms were consistent in their reasoning of why a level 1 full-scope audit would be best under the circumstance and that they were the same across the six firms, all of which were recommended to receive the RFI.  None of the firms indicated they have served as a full contract actuary with any of the pension systems.

Board members agreed  the level 1 full-scope audit was necessary to provide a proper evaluation of the state retirement systems. The board unanimously approved of a level 1 full-scope audit of the state-administered retirement systems. LRC will publish a Request for Proposal, also known as an RFP, to take bids from firms to conduct the audit.