KERS NON-HAZ NEWS BAD, WORSE, WORST Today’s meeting of the legislature’s Public Pension Oversight Board provided a stark assessment of the fiscal condition of the KERS non-hazardous fund for today, the next few years, and the next 20 years. First, David Peden, KRS chief investment officer, updated the board on fiscal- year-to-date investment returns. Investments have earned only 0.10 percent through November. If that essentially break-even rate continues for the rest of the fiscal year, K non-haz will see its assets drop by $500 million. This would put it at a dangerously low $2 billion, compared to a payout of $915 million annually. Executive Director Bill Thielen reported that a recent estimate projects the fund will bottom out at an alarming 15 percent funding ratio in a couple of years, even if it meets its actuarial assumptions. Worse still, in 20 years, the fund is projected to climb only to a mid-30s funded ratio, still dangerously low. The KRS actuary is preparing a document that would project an improvement in this dismal picture if the fund received substantial new revenue of varying amounts from whatever source, should the General Assembly choose to address the funding crisis. That document is expected to be completed in a few days. How bad could things get? David Peden said that if the KERS non-haz fund drops to about $1.5 billion in assets, it would need to convert its investment holdings into cash, rather than continue to methodically cash out other investments. In the current virtually zero-percent interest rate environment, the fund would make practically no investment returns and thus would rely almost totally on employer and employee contributions. Investments are the linchpin of a defined benefit fund; our fund instead would be in a disastrous pay-as-you-go scenario. Oversight board member Mac Jefferson asked what recommendations the KRS leadership had to improve the situation. Thielen said he would work with the oversight board to look at options. One notion is to shorten the amortization rate to 25 years, so that employer contributions would be accelerated in the short term. Board member Jane Driskell, state budget director, said it would be wrong to assume that the current cash-flow crisis was unanticipated. The administration worked with the General Assembly to craft an “affordable” pension reform plan in 2013, knowing that it would take several years for the full employer contributions to turn around the situation. Once again, KRS board members were nowhere to be seen. Key KRS staff members attend all oversight board meetings, and have from the beginning, but trustees have not. Even at the critically important last several meetings when the oversight board was gathering input and preparing its 2015 legislative recommendations, trustees were AWOL. At what point will the board take ownership of this crisis, set aside its “hands-off” policy on “engagement,” “lobbying” or whatever dirty word one cares to use, and indicate that it intends to work with decision makers to find a solution? If the answer is “never,” how can they be regarded as adequately carrying out their fiduciary duties to defend the fund?
Posted on: Mon, 15 Dec 2014 20:58:25 +0000
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