“IT’S ARITHMETIC” To use a phrase repeated several times by former President Bill Clinton during a speech in 2012. (Thanks to the other member of the Group of Two for tracking that reference down.) The arithmetic of the K-non plan is that more than a decade of failing to pay the full employer contribution doesn’t get solved by simply beginning to do so. It is going to take years, and in the meantime, the trend in assets continues declining. With such a structural imbalance, the benefits of a growing market are attenuated, and the damage of a declining market is magnified. We’re already in the hole for the first half of the fiscal year. Our investments are flat. (Keep in mind that the KERS portfolio doesn’t mirror the U.S. stock market. It is diversified, so it neither enjoys the full benefit of a surging U.S. stock market nor, it is hoped, loses as much when the bull turns to a bear.) The likelihood of hitting our assumed rate of return for this fiscal year is becoming more and more remote. As a matter of fiscal responsibility, how can Frankfort decision makers be willing to take this risk? After all, if K-non falls to its cash-only level of about $1.4 billion, there’s no going back; with no more investment income, any funding solution will have to be paid in hard cash with no more hope of letting the market pull its weight in paying benefits. The harmful effects of such a fiscal position will be felt for many years to come. And, oh, by the way, any rosy predictions of the full ARC turning around K-non are predicated on meeting all actuarial assumption. Needless to say, the investment assumption of 7.5 percent gets blown to smithereens at a cash-only level. Really, all of us get it. How is it that the policy makers don’t?
Posted on: Tue, 20 Jan 2015 19:54:31 +0000
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