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Kentucky Retirement Systems lowers return assumption to 5.25%

Kentucky Retirement Systems, Frankfort, lowered the assumed rate of return for its Kentucky Employees Retirement System non-hazardous pension plan and State Police Retirement System pension plan to 5.25% from 6.75% currently, said David L. Eager, interim executive director of the $16 billion retirement system.

The KRS board of directors also voted Thursday to lower the plans' inflation and payroll growth assumptions to 2.3% and zero, respectively, from 3.25% and 4%, currently.

Under the lowered assumed return, the funding ratio for the KERS non-hazardous pension plan falls to 13.8% from roughly 16% now, and the unfunded liability increases to $13.2 billion from about $11 billion. The state's actuarial required contribution to the pension plan also increases, to 66.5% of payroll from roughly 42%.

Finalized figures for the State Police Retirement System were not immediately available.

“For far too long (KRS) has been too aggressive with (its) assumptions and has helped contribute to (its) severely underfunded position,” Mr. Eager said.

Along with the assumption changes, KRS' investment committee is recommending more conservative asset allocations, which the board will consider at a special meeting in July.

Investment return, inflation and payroll growth assumptions for KRS' other three other pension and insurance plans also are expected lowered, but the board could not reach a consensus on the final figures at Thursday's meeting. The investment committee and KRS chairman are proposing lowering the plans' investment return assumption to 6.25% from 7.5% currently; inflation to 2.3% from 3.25%; and payroll growth to zero from 4%.