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How does the funding of Kentucky’s pension plans compare to other states?

Kentucky has the Weakest Pension Funding of Any State

The Commonwealth’s share of the retirement system aggregate pension underfunding has been calculated by a credit rating agency, Standard & Poor’s (“S&P”), as the worst among the 50 states – with just 37.4% of total current obligations now funded, compared to a national median of 74.6% as of FY2015 (the most recent period reported by S&P on this basis.)1

  • While the funding levels vary among the eight different plans supported by the Commonwealth, all are underfunded, and only the comparatively small Legislative and Judicial plans are funded at or above national averages.

  • The primary pension plan for civilian state employees, the Kentucky Employees Retirement System Non-Hazardous Pension Plan (KERS-NH) was only 16% funded as of the end of FY2016 – one of the most challenged pension programs in the nation. This funded ratio was based on the actuarial assumptions as of June 30, 2016.  Its funding level would be lower using more conservative investment and other actuarial assumptions.

The Commonwealth’s unfunded liability is also one of the largest in proportion to the revenues available to pay for the liabilities, draining resources from other critical needs.  According to the credit rating agency Moody’s Investors Service, Kentucky had the third-highest net pension liability among the states when measured as a percentage of governmental revenues using standardized actuarial assumptions.  This ratio for Kentucky’s liability at 185% of total annual revenues was more than twice the average state burden of 75% and more than three times the median of 60%.

Source: PFM Group Consulting report, May 22, 2017.  For more information about this topic, click here to see relevant portions of that report.

1 Standard & Poor’s, U.S. State Pensions: Weak Market Returns Will Contribute to Rise in Expense, September 12, 2016.