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)
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.