Kentucky Retirement Systems PPWG David Eager, Executive Director Erin Surratt, Executive Director, Office of Benefits January 2019 1
JANUARY 29, 2019 • KRS Profile - Governance structure - Agencies - Memberships - Benefits • Understanding the funding process • The history of funding and the plans’ funding statuses - Attribution of the shortfalls • Setting the economic assumptions for FY 2019 and FY 2020 • The retiree unfunded liability problem • The need for fixed dollar funding • Identify other issues KRS faces 2
JANUARY 31, 2019 • Investment overview • GRS presentation – Trends in Investment Return Assumptions • Discussion with KRS and GRS - Issues KRS faces - Potential initiatives to improve KRS - Other PPWG issues 3
The KRS GOVERNANCE STRUCTURE Board of Trustees: • 10 appointed by the Governor – 7 directly appointed – 3 from lists submitted by the League of Cities, KACo, and the School Board Association • 6 Elected by the KRS membership – 3 CERS – 2 KERS – 1 SPRS • 1 Ex-Officio: Secretary of the Personnel Cabinet • Must have six (6) investment professionals (SB2 2017) 4
The KRS GOVERNANCE STRUCTURE Board of Trustees: • Board elects a Chair and Vice Chair • Five (5) Committees: – Investment – Audit – Retiree Healthcare – Disabilities Appeals – Administrative Appeals • Board hires the Executive Director • Board has corporate powers (e.q. contract for services, lawsuits) • Board establishes KRS Bylaws 5
EMPLOYER CLASSIFICATIONS KERS Employers CERS Employers SPRS Employers County Attorneys 61 Airport Boards 5 Jailers 2 State Police 1 Health Departments 60 Ambulance Services 19 Libraries 85 Master Commissioner 34 Area Development Districts 14 Other Retirement Systems 2 Non-P1 State Agencies 36 Boards of Education 173 P1 State Agencies 4 Other Retirement Systems 1 Cities 221 Parks and Recreation 7 P1 State Agencies 137 Community Action Agencies 21 Planning Commissions 16 Regional Mental Health Units 12 Conservation Districts 49 Police Departments 2 Universities 7 County Attorneys 77 Riverport Authorities 5 Total 348 County Clerks 16 Sanitation Districts 9 Development Authorities 6 Sheriff Departments 12 Fire Departments 38 Special Districts & Boards 49 Fiscal Courts 118 Tourist Commissions 23 Health Departments 1 Urban Government Agencies 2 Housing Authorities 42 Utility Boards 120 Total 1,138 6
TOP 10 EMPLOYERS SPRS Employers KERS Employers CERS Employers 891 1 State Police # of # of Rank Empl ploy oyer er Rank Empl ploy oyer er empl ploy oyees es empl ploy oyees es Department for Jefferson County Board 1 6,447 1 Community Based 4,572 of Education Services Louisville Jefferson 2 Department of County Metro 5,098 2 3,798 Corrections Government Department of Fayette County Board of 3 3 3,710 1,918 Highways Education Judicial Department Lexington Fayette Urban 4 1,728 4 Administrative Office of 1,393 County Government the Courts Judicial Department 5 Department of Juvenile Administrative Office of 1,658 5 1,195 Justice the Courts Boone County Board of 6 6 Bluegrass.org 940 1,155 Education Bullitt County Board of 7 7 Kentucky State Police 904 1,137 Education Unified Prosecutorial Hardin County Board of 8 8 862 1,105 System Education Department of Veterans Pike County Board of 9 847 9 974 Affairs Education 10 Warren County Board of Department of Revenue 809 10 958 Education All Others 20,577 All Others 72,407 Total 39,607 Total 94,585 7
KRS PLANS AND MEMBERSHIPS MEMBERS KERS 122,788 Non-Hazardous KERS 11,689 Hazardous CERS 222,672 Non-Hazardous CERS 19,513 Hazardous 2,626 SPRS TOTAL 379,288 8
2018 KRS MEMBER BREAKDOWN TOTAL Initiated 2008 Initiated 2014 63,547 26,589 43,283 133,419 ACTIVE 88,274 27,297 19,392 134,963 INACTIVE 110,553 352 1 110,906 RETIRED TOTAL 262,374 54,238 62,676 379,288 9
KRS Benefit Tiers – Eligibility Defined Benefit Plan Defined Benefit Plan Cash-Balance Plan Participation Participation Participation 09/01/2008 prior to 09/01/2008 01/01/2014 and after until 12/31/2013 Non-Hazardous Hazardous Non-Hazardous Hazardous Non-Hazardous Hazardous Rule of 87 Rule of 87 27 years 20 years 25 years 25 years Must be age 57 & Must be age 57 & of service credit Age + years of of service credit Age + years of of service credit of service credit service credit = 87 service credit = 87 Age 65 Age 60 Age 65 Age 60 Age 55 Age 65 with 5 years of with 5 Years of with 5 years of with 5 Years of or older or older service service service service Reduced Benefit Reduced Benefit Reduced Benefit 25 to 27 Age 50 Age 60 Age 50 N/A N/A years with at least 15 years with 10 years of with at least 15 years of service credit of service credit service credit of service credit Age 55 Note: Tier 3 is vested at 5 years of with 5 Years of service. service 10
KRS BENEFIT TIERS – CONTRIBUTIONS TO MEMBER ACCOUNTS Initiated 9/1/2008 Initiated 1/1/2014 Employee Contribution to their account 5% Pension 5% Pension + + Non-Hazardous 5% 1% Health Insurance 1% Health Insurance 8% Pension 8% Pension + + 8% Hazardous 1% Health Insurance 1% Health Insurance Employer Contribution to the Member’s account* * * 4% Non-Hazardous * Hazardous * 7.5% * Only applies to Tier 3 11
KRS Benefit Tiers – Benefits Final Compensation X Final Compensation X Accumulated Account Balance Benefit Factor X Years of Benefit Factor X Years of ÷ Actuarial Factor = Monthly Service Service Life Annuity KERS NON- 1.97% 1.10% - Up to 10 Years Accumulated Account (2.0% with 13 months 1.30% - 10 - 20 Years Balance = HAZ • service from 1/1998- 1.50% - 20 - 26 Years Member 1/1999) 1.70% - 26 – 30 Years Contribution • 2.0% - 30+ Years Employer Pay CERS NON- 2.2% ( only applies to service in Credit Participation prior 8/1/04 HAZ • excess of 30 years) Base Interest (4%) 2.0% • Upside Sharing* Participation after 8/1/04 *Upside Sharing is KERS HAZ 2.49% 1.30% - Up to 10 Years calculated as the 1.50% - 10 - 20 Years trailing 5 year earnings CERS HAZ 2.50% 2.25% - 20-25 Years of the funds + 75% of 2.50% - 25+ Years 2.50% SPRS the excess over 4% 12
SICK LEAVE Tier 1 Tier 2 Tier 3 • • • KERS/SPRS: Unlimited Limited to 12 months Not eligible for sick amount. Amount can be between KERS, CERS leave credit. • used toward determining and SPRS for purposes Not eligible for sick retirement benefits. of determining monthly leave credit in CERS if Total cost billed to last benefits. Participation Date in • participating employer. Does not count toward CERS is on or after • CERS: ( Optional for retirement eligibility or 1/1/2014 even if an CERS employers) health insurance. earlier Participating Date • Employer chooses level Last participating is established in KERS and amount used employer in or SPRS. toward determining KERS/SPRS pays total retirement benefits. cost. Individual CERS Sick leave billed to employer billed for cost. individual CERS employer. 13
SERVICE PURCHASE Tier 1 Tier 2 Tier 3 • • • Removed ability for employees Service purchases Recontribution of who participate after July 2002 to do not count Refunds, Omitted purchase Non-Qualified service towards retirement service and Military (“Air - time”). eligibility.* Omitted are the • Members pay 100% of the only purchase actuarial cost* types allowed. • • Service purchased on or after A recontribution of 8/1/2004, cannot be used towards refund will not reset health insurance benefits.* the participation • New hires on or after 8/1/2004 date if requested cannot use most service on or after purchases to count towards 1/1/2014. retirement eligibility.* *Exceptions: Recontribution of *Exceptions: Refund, Sick Leave, Omitted, Free Recontribution of Military and Hazardous Conversion. Refund, Omitted, and Free Military. 14
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MEDICAL INSURANCE BENEFITS Participation between 7/1/03-8/31/08 MEDICAL INSURANCE BENEFITS For Members participating Members must have 10 years of earned service credit BEFORE July 1, 2003 Participation after 9/1/08 Total Years of % paid for Members must have 15 years of earned service credit Service Retiree • NON -HAZARDOUS MEMBERS will earn Less than 4 years 0% $10 per month towards insurance for each year of earned service 4 – 9+ years 25% • HAZARDOUS MEMBERS will earn $15 per 10 – 14+ years 50% month towards insurance for each year of earned service 15 – 19+ years 75% • The contributions will be increased each 20 or more years 100% year by the Cost of Living Adjustment (COLA) Percent paid for spouse and eligible • The monthly contributions for 2019 are dependents is based on hazardous $13.38 Non-Hazardous; $20.07 Hazardous service at retirement. 16
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