Difference between revisions of "Kentucky Retirement Systems"
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Revision as of 08:41, 31 October 2008
According to the Comprehensive Annual Financial Report (CAFR) - 2007, the Kentucky Retirement Systems consists of three systems: the Kentucky Employee Retirement system (PERS); County Employee Retirement System (CERS) and the State Police Retirement System (SRPS). KERS was created in 1956 by the Kentucky General Assembly in order to supplement the benefits provided by Social Security. When the first actuarial valuation was completed June 30, 1957, there were 16,000 employees participating in KERS and assets of $2.8 million. SPRS and CERS were established in 1958. The first actuarial valuation of SPRS was conducted June 30, 1959. No actuarial valuation of CERS was conducted until June 30, 1960 because the statutes did not authorize retirements from the system prior to July 1, 1960. On June 30, 1960, there were 68 counties and 2,617 employees participating in CERS, and SPRS included 415 uniformed state troopers.
As of June 30, 2007, there were more than 316,000 active, inactive and retired members in the combined systems and approximately $16.9 billion in assets. Employees who work in a regular full time position for a participating agency must be enrolled in the retirement system at the beginning of their employment. A regular full-time position is defined as positions that average 100 hours of work per month over a fiscal or calendar year, excluding the classifications of temporary, seasonal, and interim. For school board employees, a regular full-time position is defined as a position that requires the employee to average 80 hours of work per month over the actual days worked during the school year.
KRS received an increase in the employer contribution rate for the 2006-2007 and the 2007-2008 fiscal years. While this was the first increase in the KERS and SPRS employer rates since 2001, contributions remained far short of the actuarial recommended rates.
The retirement plans administered by KRS are qualified public defined benefit plans and were established under Section 401a of the Internal Revenue Code (IRC). Benefits are based on a formula, rather than on an account balance. The formula used to compute KRS benefits provides participating members with a guaranteed lifetime payment at retirement based on the number of years of service, your average salary and a multiplying factor.
Kentucky Retirement Systems benefits are funded through three sources: employee contributions deducted from an employee's compensation, employer contributions paid by each state and county agency participating in the retirement systems, and return on investments.
Kentucky Retirement Systems commenced self-funding of healthcare benefits for its Medicare eligible retirees on January 1, 2006. A self-funded plan is one in which Kentucky Retirement Systems assumes the financial risk for providing healthcare benefits to its retirees. The self-funded plan pays for claims out-of-pocket as they are presented instead of paying a pre-determined premium to an insurance carrier for a fully-insured plan. Kentucky Retirement Systems funds the risk directly from its assets. Kentucky Retirement Systems becomes directly responsible for administering benefits under the plan.
In 2006 KRS offered five new health plans to its Medicare eligible retirees. Three of those offerings were self-insured products and two were Anthem Medicare Advantage plans. Beginning in January 2007 the Anthem Medicare Advantage plans were no longer offered to retirees. This first year saw a 5% increase in generic drug utilization and an overall medical trend in single digits. KRS has supported the Center for Medicare and Medicaid Services’ (CMS) preventive screening initiatives for Medicare eligible retirees and participated in the Retiree Drug Subsidy (RDS) program also offered by CMS. The RDS program realized a $13.5 million reimbursement for KRS from CMS for providing pharmaceutical coverage to its retirees.
Kentucky Retirement Systems’ plan is defined by statute. Kentucky Retirement Systems selected Walgreen’s Health Initiatives and Fiserv Health (Wausau Benefits, Inc.) to administer the pharmaceutical and medical benefits for its retirees.
Non-hazardous employees who are eligible to participate in the retirement systems contribute 5% of creditable compensation. Employees eligible to participate in the retirement systems who are working in a hazardous duty position approved by the KRS Board of Trustees contribute 8% of total creditable compensation.
Note: Individual agencies must petition the KRS Board of Trustees to approve certain positions for hazardous duty coverage. The Board will determine if the position meets the definition of "hazardous" as provided by Kentucky Revised Statute 61.592.
The following employer rates effective July 1, 2006, were recommended and consequently adopted as a result of the actuarial valuation and actions of the 2006 Regular Session of the General Assembly:
Employer Rates for the 2006-2007 Fiscal Year
- KERS (non-hazardous employers) 7.75%
- KERS (hazardous employers) 22.00%
- CERS (non-hazardous employers) 13.19%
- CERS (hazardous employers) 28.21%
- SPRS 25.50%
Note that: House Bill 380 passed during the 2006 Regular Session of the General Assembly reduced the employer contribution rate from the amount recommended by the Board and its' consulting actuary.
The Board of Trustees of the Kentucky Retirement Systems has a statutory obligation to invest KRS’ funds in accordance with the “prudent person rule.” The prudent person rule states that fiduciaries shall discharge their investment duties with the same degree of diligence, care and skill that a prudent person would ordinarily exercise under similar circumstances in a comparable position.
The Board manages the funds in recognition of the basic long-term nature of the Systems. The Board interprets this to mean that the assets of the systems should be actively managed — that is, investment decisions regarding the particular securities to be purchased or sold shall be the result of the conscious exercise of discretion. The Board further recognizes that proper diversification of assets must be maintained. It is through these policies that KRS has been able to provide significant return/risk ratio over the long-term while minimizing investment related expenses.
The pension and insurance investment trusts experienced positive growth during the 2006-2007 fiscal year. The pension portfolio posted a total return of 15.3% for the year, while the insurance portfolio earned 19.3%. Investment income, which includes the appreciation of asset values, dividends, and interest totaled $1,909.2 million and $421.7 million, net of investment expenses, for the pension and insurance portfolios, respectively. The majority of this amount was due to the appreciation in value of investments, which totaled $1,507.8 million for the pension portfolio and $366.8 million for the insurance fund. Interest and dividends accounted for $420.7 million for the pension portfolio and $57.4 million for the insurance portfolio.
The Kentucky Retirement Systems’ funding objective is to meet long-term benefit promises through contributions that remain fairly level as a percent of active member payroll. The progress towards achieving the intended funding objectives for both the pension and insurance funds can be measured by the funding level of the actuarial assets of each fund to the actuarial liabilities. The funding levels for the pension funds as of June 30, 2007 were:
- 56.89% for KERS Non-Hazardous
- 83.59% for KERS Hazardous
- 82.11% for CERS Non-Hazardous
- 74.22% for CERS Hazardous
- 63.66% for SPRS.