Protecting retirement security

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Protecting retirement security

  1. 1. • Failing to make the full required contribution in 14 of last 21 years – State did not make $3.2 billion in required contributions over 1993-2013; shortfall is $4.3 billion once you count missing investment returns• Providing but not pre-funding COLAs & temporary retirement incentives in ’98 & ‘01• Problem exacerbated by investment losses in 2 recessions
  2. 2. 10-year returns 2000- 2010: KRS 3.12% compared to 2.85%; Since inception to 2012: KRS 9.36% compared to 9.48% benchmark.Sources: Kentucky Retirement Systems, Boston College Center for Retirement Research
  3. 3. “Sponsors of seriously underfunded plans, such as those in Illinois, Kentucky, Louisiana, New Jersey and Pennsylvania, have behaved badly. They have either failed to make their required contributions or used inaccurate assumptions so that their contribution requirements are not meaningful.”Alicia H. Munnell, State and Local Pensions: What Now?, Brookings Institution Press, 2012
  4. 4. Jeffrey H. Keefe, “Public Versus Private Employee Costs in Kentucky: Comparing Apples to Apples,” Kentucky Center for Economic Policy
  5. 5. • Formula multiplier – National average: 1.95% – Kentucky for most new employees post-2008: 1.1% - 1.75%• Final average salary – Majority of plans use 3 years – Kentucky uses 5 years for new employees post- 2008• Average KERS non-hazardous retiree receives $20,508/year
  6. 6. • $1.6 billion in annual payments • 93,422 retirees • 95% of whom live in KentuckySource: Kentucky Retirement Systems
  7. 7. Source: Kentucky Retirement Systems
  8. 8. Source: Bolton Partners/Kentucky Public Pension Coalition
  9. 9. More $$ LessCash balance spent on experienced plan recruitment and skilled & training workforce Lower quality Fewer skilled and Higher workers turnover productivity attracted of public services
  10. 10. • More turnover and more workers withdrawing lump sums means fewer assets & more need for liquidity• Risk to state of <4% return could mean more conservative investment strategy
  11. 11. • Pew/Arnold: “Kentucky’s current benefits for new employees are relatively modest and seeking meaningful savings from a new plan is not possible” • Employer costs for cash balance plan = current plan.Source: Pew/Arnold Foundation materials submitted to Task Force on Public Pensions in Kentucky
  12. 12. Political risk of underfunding—need for financial plan Risk of loweringRisk of deepening quality of public the retirement services Kentucky security crisis desperately that is coming needs to grow

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