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Bevin Asks Consultants to Re-Do Unfavorable Analysis of Pension Proposal

Governor Matt Bevin's administration is asking for a do-over in the analysis of its Kentucky Teacher Retirement System pension bill.

In a news release, State Budget Director John Chilton asked Cavanaugh Macdonald to redo its analysis, which he argued uses assumptions "that are very different from those in its annual valuation reports, including significant changes in retirement patterns and an investment return assumption very different from the rate recently approved by the TRS Board."

The administration said that the request for the recalculation recognizes that there will be certain assumption changes based upon the pension proposal, "but the changes by Cavanaugh MacDonald regarding assumed investment returns and future retirement patterns were significant departures from those used in prior valuations."

The administration wants the analysis to be extended by 30 years.

“The actuarial assumptions in Cavanaugh Macdonald’s most recent report are significantly different from those in the actuarial calculations provided to our consultants during the planning process," said Chilton. "In the past, a lack of realistic and rational actuarial assumptions helped obscure the distressed financial status of the plans and contributed to the long-term unsustainability of the plans. We will ask Cavanaugh Macdonald to prepare calculations with several alternative assumptions so that policy makers can make informed decisions based on scenarios that include realistic assumptions and that are satisfactorily reconciled with those that Cavanaugh Macdonald provided in the past.”

The Courier-Journal summarized the bill:

The bill would eventually move public employees from traditional pension plans into 401(k)-like plans. New workers and teachers would go into the 401(k)-like plans starting next year. Current teachers and government employees would remain in their pension plans until completing 27 years of service, then future benefits would be from participation in the 401(k)-like plans. Teachers, however, would be given an option of remaining three more years within their traditional pension plans.

The bill would do much more: it suspends for five years annual cost-of-living increases in teacher benefits, deducts 3 percent more from the paychecks of teachers and government workers for their retiree health benefits, and requires much bigger contributions from the state to pension plans to begin immediately taking a bite out of the state's total pension liabilities that exceed $40 billion.

The Herald-Leader added:

The agency said its unfunded liability now stands at $14.3 billion, compared to an unfunded liability of $26.75 billion at KRS. Combined, the state’s major pension systems have an unfunded liability of $41.05 billion, meaning the agencies have $41 billion more in future pension liabilities than they hold in anticipated assets.

The KRS Board of Trustees was scheduled Monday to review its own actuarial analysis of Bevin’s 505-page proposed pension bill, but Chilton — a Bevin appointee who sits on the board — said he wouldn’t release it.

Actuarial calculations help to inform policy makers as they consider proposals in the legislative process, a news release said.

-Staff report

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