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Is the statutory funding formula (percent of payroll) appropriate?

Under current assumptions, including the statutory formula for paying down the unfunded liabilities that backloads principal payments, the funded ratio for KERS-NH is estimated by the actuary to continue to decline, before gradually rising beginning in FY2023 – but only if all actuarial assumptions are met.  In fact, even if the current assumptions of 6.75% annual investment returns and 4% annual payroll growth are achieved and the payment schedule is met in full, KERS-NH is still not estimated to reach 20% funded until FY2030, as can be seen in the table below.

A more adequate funding schedule for paying down unfunded liabilities - a level dollar amortization that is similar to a standard home mortgage - would cost significantly more in the short term but would

  • make an immediate improvement in funding levels,
  • make faster progress in reducing the unfunded liability,
  • eliminate reliance on changes in payroll as a variable, and
  • not backload principal payments as does the current funding schedule.

Source: Cavanaugh MacDonald2 as cited in the PFM Consulting Group report, May 22, 2017.

Note: Actuarial assumptions include 6.75% earnings assumption, 4% payroll growth, and 26-year remaining amortization period.3

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


Comparison of Pension Amortization Schedules

KERS-NH June 30, 2016 Valuation and Actuarial Assumptions

Level % of Payroll (Current Baseline Amortization Method as Defined in 2013SB2 vs. Level $ Amortization

($ in Millions)


Year Employer Contribution Unfunded Liability Funded Ratio
Level % Level $ Level % Level $ Level % Level $
2019$731.7$1,082.2$11,620.2$11,257.912.9%15.6%
2020752.61,113.111,741.110,981.712.2%17.9%
2021793.31,117.311,788.510,642.912.0%20.5%
2022817.61,151.511,813.510,245.411.9%23.6%
2023851.91,099.411,804.59,874.712.1%26.5%
2024879.01,134.511,766.79,442.612.4%29.7%
2025912.11,071.011,692.29,046.913.0%32.7%
2026942.71,106.911,581.08,587.513.8%36.1%
2027976.71,040.211,427.58,166.314.9%39.2%
20281,010.41,076.111,229.17,679.916.3%42.7%
20291,044.01,005.810,983.07,233.818.0%46.0%
20301,080.61,041.010,682.76,721.320.1%49.7%
20311,114.8968.810,327.06,249.222.5%53.1%
20321,154.61,003.49,906.75,709.925.5%57.0%
2033$1,190.7$929.8$9,421.5$5,211.228.9%60.7%


2 Certain actuarial data and calculations have been developed by Cavanaugh Macdonald Consulting LLC, plan actuaries for the KERS and TRS systems, under a subcontract with PFM in order to help ensure the accuracy of the estimates and projections herein.

3 The level dollar amortization schedule is estimated to fluctuate somewhat due to the Commonwealth's biennial budget structure, and conversion of the amortization estimate to a payroll basis by the actuary's model.