2. • Failing to make the full required contribution
in 14 of last 21 years
– State did not make $3.2 billion in required
contributions over 1993-2013; shortfall is $4.3
billion once you count missing investment returns
• Providing but not pre-funding COLAs &
temporary retirement incentives in ’98 & ‘01
• Problem exacerbated by investment losses in
2 recessions

3. 10-year returns 2000-
2010: KRS 3.12%
compared to 2.85%;
Since inception to
2012: KRS 9.36%
compared to 9.48%
benchmark.
Sources: Kentucky Retirement Systems, Boston College Center for Retirement Research

4. “Sponsors of seriously underfunded plans, such
as those in Illinois, Kentucky, Louisiana, New
Jersey and Pennsylvania, have behaved badly.
They have either failed to make their required
contributions or used inaccurate assumptions
so that their contribution requirements are
not meaningful.”
Alicia H. Munnell, State and Local Pensions: What Now?,
Brookings Institution Press, 2012

5. Jeffrey H. Keefe, “Public Versus Private Employee Costs in Kentucky: Comparing Apples to Apples,” Kentucky Center for Economic Policy

6. • Formula multiplier
– National average: 1.95%
– Kentucky for most new employees post-2008:
1.1% - 1.75%
• Final average salary
– Majority of plans use 3 years
– Kentucky uses 5 years for new employees post-
2008
• Average KERS non-hazardous retiree receives
$20,508/year

7. • $1.6 billion in annual payments
• 93,422 retirees
• 95% of whom live in Kentucky
Source: Kentucky Retirement Systems

8. Source: Kentucky Retirement Systems

9. Source: Bolton Partners/Kentucky Public Pension Coalition

10. More $$ Less
Cash balance spent on experienced
plan recruitment and skilled
& training workforce
Lower quality
Fewer skilled and
Higher
workers
turnover productivity
attracted
of public
services

11. • More turnover and more workers withdrawing
lump sums means fewer assets & more need
for liquidity
• Risk to state of <4% return could mean more
conservative investment strategy

12. • Pew/Arnold: “Kentucky’s current benefits for
new employees are relatively modest and
seeking meaningful savings from a new plan is
not possible”
• Employer costs for cash balance plan = current
plan.
Source: Pew/Arnold Foundation materials submitted to Task Force on Public Pensions in Kentucky

13. Political risk of
underfunding—need
for financial plan
Risk of lowering
Risk of deepening
quality of public
the retirement
services Kentucky
security crisis
desperately
that is coming
needs to grow