FRANKFORT, Ky. (AP) – Kentucky’s public pension system, which officially faces an $18.1 billion unfunded liability, might be in worse shape than previously thought.
The bigger potential problem for Kentucky Retirement Systems means taxpayers could be on the hook for much more money to honor pension commitments to about 365,000 public employees, the Lexington Herald-Leader (http://bit.ly/2lqlzMM) reported.
KRS board chairman John Farris told fellow trustees Thursday that KRS made math errors in recent years. The state pension agency relied on overly optimistic assumptions about its investment returns, the growth of state and local government payrolls and the inflation rate, he said.
For example, KRS assumed it would earn an average of 6.75 percent to 7.5 percent on money it invested, but it earned an average of 4.75 percent, Farris said. KRS assumed that public payroll would grow by 4 percent a year through pay raises or more government hiring – a larger payroll means larger pension contributions by employees – but public payroll has dropped overall because of repeated budget cuts, he said.
By giving inaccurate numbers to its actuarial advisers, KRS got back inaccurate numbers concerning its liabilities and how much the state and local governments needed to contribute, Farris said. He called for a new analysis of KRS‘ financial health so the next state budget, covering fiscal years 2019 and 2020, reflects the pensions’ true needs.
“It doesn’t make any sense,” said Farris, a Lexington economist whom Gov. Matt Bevin appointed to the KRS board last year. “We wonder why the plans are underfunded. It’s not all the legislature’s fault. It’s the board’s responsibility to give the correct numbers.”