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Overview

Kentucky sponsors eight pension plans within three major retirement systems that provide pension and retiree health care benefits to over 166,000 retired public sector and nonprofit employees:

Kentucky Retirement Systems (KRS)

  • Kentucky Employees Retirement System: Non-Hazardous employees (KERS-NH)
  • Kentucky Employees Retirement System: Hazardous employees (KERS-H)
  • State Police Retirement System (SPRS)
  • County Employees Retirement System: Non-Hazardous employees (CERS-NH)
  • County Employees Retirement System: Hazardous employees (CERS-H)

Kentucky Judicial Form Retirement System (KJFRS)

  • Kentucky Legislators' Retirement Plan (KLRP)
  • Kentucky Judicial Retirement Plan (KJRP)

Teachers' Retirement System of Kentucky (TRS)

Snapshot

Based on 2016 actuarial assumptions


Plan Unfunded
Accrued Liability
Total Liability
(Promised Pensions)
Funded Ratio
TRS $14,531,300,000 $33,007,300,000 54.6%
KERS-NH $11,112,000,000 $13,229,000,000 16%
CERS-NH $4,541,000,000 $11,075,900,000 59%
CERS-H $1,565,300,000 $2,700,500,000 57.7%
SPRS $540,600,000 $775,600,000 30%
KERS-H $377,200,000 $936,000,000 59.7%
KJRP $115,000,000 $412,200,000 72.1%
KLRP $15,200,000 $102,000,000 85.1%
TOTAL $32,797,600,000 $62,238,500,000 52.7%

Kentucky Pension Systems are in Crisis

Why Does Pension Underfunding Matter?


Unfunded liabilities have been increasing, which drives up required contributions to the Commonwealth's pension plans.

Kentucky's pension spending has been increasing nearly five times as fast as revenues – growing 56% in FY2017 alone. This effectively reduces money available for other important budgetary priorities. (For example, K-12 education, Medicaid, etc. and public services.)

The affordability and financial sustainability of Kentucky's pension plans bear strongly on the capacity of the Commonwealth and its local governments to address other critical needs and deliver the public services citizens expect.

37.4% of total state obligations funded

National median is 74.6%*

*Standard and Poor's

Investment Underperformance and Growth of Investment Risk

The KRS and TRS plans have taken on significantly more investment risk over the last decade in order to chase unrealistically high investment returns.

Portfolio allocations to fixed income investments have fallen, while investments in international equity, private equity, alternatives and hedge funds have increased.

KRS and TRS have increased their alternative investment holdings over the past 15-years and reduced their low-risk, fixed-income holdings.

When compared to other public plans, the KRS plans have had an allocation to riskier alternative investments that nearly double the peer average.

The newly appointed KRS board has already taken steps to significantly reduce the overall allocation to hedge funds in an attempt to lower costs, increase liquidity, and improve performance. Unfortunately, significant exposure to market risks still remain.

The Need for Comprehensive Pension Reform

The status quo is not sustainable and is seriously threatening retirement security for all public sector workers in Kentucky.

Billions in pension debt are growing in perpetuity unless significant changes are made.

Pension debt will continue growing even if the plans earn their expected investment return because of the "back-loaded" funding method used to pay off existing unfunded liabilities.

Several of Kentucky's pension funds may completely run out of money with just one or two more bad years of investment returns.

Previous changes have not fully fixed the problem.

Shifting KRS's state employees (non-hazardous) to a cash balance plan in 2014 was a positive step that restrains the future growth of liabilities. But that change did not solve the plan's solvency problem for retirees and most current workers.

TRS remains on an unsustainable path and needs to pursue reforms to ensure that all commitments made will be met. This must be done by putting in place a new, sustainable plan for future workers, focused on providing retirement security while reducing the exposure of state and taxpayers to financial risk.

Overview