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Why should everyone care about Kentucky’s pensions?

The pension obligations represent the Commonwealth’s largest financial obligation.  The obligations are HUGE and represent a significant burden on the Commonwealth’s finances.  This burden continues to significantly inhibit government’s ability to deliver important services that are important to taxpayers.

Taken together, the Commonwealth of Kentucky and other government and government-related entities face a funding shortfall across its pension systems of $33 billion, assuming the funds achieve targeted investment return rates of from 6.75% to 7.5% that were used in funding computations in prior years.

If actual investment results are less than those targeted rates, then investments will not provide as much as previously assumed to pay pensions in the future.  Using alternative lower rates of return, the unfunded pension obligations are much larger.  As a reference point, the Commonwealth’s entire annual General Fund budget is less than $11 billion.

Source: PRM Consulting Group based on analysis of the actuarial reports

Note:  The Published Actuarial rates are those used in 2016.  Revised Asset Allocation rates are those recommended by PFM. The Corporate Bond Index is the rate required of corporate pension funds.  The 30-year U.S. Treasury rate is the current “guaranteed” rate that could be realized.

Note:  The amounts indicated above are for the pension plans, not including the health insurance plans.  Altogether, those plans are underfunded by at least an additional $6 billion.

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