Kentucky Retirement Systems, Frankfort, lowered the assumed rate of return for the Kentucky Employees Retirement System hazardous pension plan, County Employees Retirement System hazardous and non-hazardous pension plans, and five insurance plans to 6.25% from 7.5%, said David L. Eager, interim executive director of the $16 billion retirement system.
The changes were approved by the KRS board on Wednesday. The board also voted Wednesday to lower the pension plans' payroll growth assumptions to zero from 4% for KERS hazardous and to 2% from 4% for CERS hazardous and non-hazardous.
Under the new return assumptions, the funding ratio for the KERS hazardous pension and insurance plans falls to a combined 71% from 78.6%, and the unfunded liability rises to $420 million from $280 million.
The funding ratios for CERS hazardous and non-hazardous fall to 56% and 55.1%, respectively, from 62.2% and 61.3%, and the unfunded liability increases to $2.6 billion and $7 billion, respectively, from $2 billion and $5.4 billion.
The state's actuarial required contribution to KERS hazardous and CERS hazardous and non-hazardous also increases to 36.1%, 44.2% and 26.4% of payroll, respectively, from 21.8%, 31.6% and 19.2%, currently.
"We're trying to make the assumptions more realistic and from an investment standpoint, more in line with structure and expectations of the portfolios," Mr. Eager said.
In May, the board lowered the assumed rate of return for its two other pension plans — the KERS non-hazardous plan and the State Police Retirement System — to 5.25% each from 6.75%. The board also lowered the plans' inflation and payroll growth assumptions to 2.3% and zero, respectively, from 3.25% and 4%. The inflation assumptions for the KERS hazardous pension plan, CERS hazardous and non-hazardous pension plans and all five insurance plans were also lowered to 2.3% from 3.25% in May.
The retirement system has roughly $11.5 billion in total pension assets and $4.6 billion in total insurance assets.
The CERS non-hazardous and accompanying insurance plan have $6.5 billion and $2.1 billion, respectively, in assets; CERS hazardous and accompanying insurance plan, $2.1 billion and $1.1 billion, respectively; and KERS hazardous pension has $559 million in assets and the accompanying insurance plan has $473 million.
