Call to Order and Roll Call
A meeting of the Public Pension Oversight Board was held on Monday, June 1, 2015, at 2:00 PM, in Room 131 of the Capitol Annex. Senator Joe Bowen, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Joe Bowen, Co-Chair; Representative Brent Yonts, Co-Chair; Senator Jimmy Higdon; Representatives Brian Linder and Tommy Thompson; Tom Bennett, Jane Driskell, and Sharon Mattingly.
Laura Crittenden was present on behalf of Robyn Bender.
Guests: Representative James Kay, Representative Arnold Simpson, Representative Jerry Miller, Mary Martin, Kentucky Government Retirees, L. B. VanMeter, Kentucky Judicial Retirement System, Mary Helen Peter, Board Member, Kentucky Retirement Systems, Lowell Reese, Kentucky Roll Call, Sue G. Simon, Kentucky Government Retirees, Kevin Borland, Peritus, and Scott Wegenast, AARP Kentucky, among others.
LRC Staff: Brad Gross, Bo Cracraft, Greg Woosley, Terrance Sullivan, Judy Fritz, and Marlene Rutherford.
Approval of Minutes
Mr. Bennett moved that the minutes of the April 27, 2015, meeting be approved. Co-Chair Yonts seconded the motion, and the minutes were approved without objection.
Co-Chair Bowen summarized the materials contained in the board members’ folders that would be reviewed and discussed during the meeting.
Bill Thielen, Executive Director, Kentucky Retirement Systems, introduced members of the KRS Board in attendance, Tommy Elliott, KRS Board Chairman, Ed Davis, CERS elected member, Vince Lange, KERS elected member, and Mary Helen Peter, KERS elected member.
Kentucky Retirement Systems Investment Update
David Peden, Chief Investment Officer, Kentucky Retirement Systems provided an investment performance update through the month of April. The total portfolio for the month of April was up 1.39 percent versus the benchmark of 1.54 percent. The performance fiscal year-to-date places the total portfolio at a positive 2.6 percent versus the benchmark return of 3.98 percent. Early May estimates appear to be up only 10 basis points, as the last week in the equity markets was not a good week and the month ended flat. He said that it was unlikely the 7.5 percent assumed rate of return would be met this fiscal year with only one additional month remaining, but that he was hoping for a four percent return for the fiscal year. He brought to the board’s attention an article that was written in Bloomberg Business and highlighted that spending by affluent Americans is lower than historically seen and that this is weighing on U.S. growth. He noted that six years after the worst recession since the 1930s Americans who earn $100,000 to $249,999 a year are still making very careful decisions when it comes to discretionary purchases. The article further stated that spending power is curbed by sluggish income gains and these high wage earnings are spending about 10 percent less on luxury goods and services in this fourth quarter compared with the same period in 2013, and that analysts’ estimates for sales growth in the high-end retail sector have been missed in three of the past five quarters. The caution of high-income consumers is key to the lackluster retail environment because the top 20 percent of households make up more than half of total spending. Mr. Peden said the same was true in business and capital spending, with many businesses holding cash instead of making substantial investments, and that this is the market environment in which KRS is dealing. He said the investment performance he discusses with the PPOB each month is largely dictated by the work done on asset allocation five years ago, but that the asset allocation information provided by RV Kuhns at the meeting will be what is occurring currently with asset allocation decisions going forward. He said the portfolio is constructed on fundamentals, and although he is not happy with the investment performance this year, as a long term investor KRS should be positioned to take advantage of the long run opportunities in the markets. He reminded the PPOB how KRS performed last year and that the economy is getting into a much better environment for performance in the future.
Mr. Thielen advised that the KRS Board at its last meeting approved a contract with CEM Benchmark, Inc. to perform a pension administration and investment benchmarking study, and that the investment study will be conducted first. CEM will appear before the PPOB if it desires to present those studies. He also stated that an executive director search committee has been appointed and has met one time, and that a RFP has been approved for a national search.
Review of KRS Actuarial Audit Process – The Segal Company
Ms. Kim Nicholl and Mr. Matt Strom, with the Segal Company, gave an overview of their backgrounds. Both Ms. Nicholl and Mr. Strom are Fellows of the Society of Actuaries, with combined experience of over 50 years. Ms. Nicholl’s experience has focused on public pension plans since 1993 and she serves as lead actuary to statewide pension systems across the country. Mr. Strom’s experience has focused on public pension plans since 2008. He serves as lead actuary to large municipal pension systems across the country and as a secondary actuary to statewide pension systems.
Ms. Nicholl and Mr. Strom discussed the overview of the valuation process; the purpose of an actuarial audit; the types of actuarial audits; and Segal’s approach to the upcoming KRS actuarial audit.
Ms. Nicholl said there are different types of actuaries, and she and Mr. Strom are retirement actuaries who focus on the analysis of funding public sector pension plans and that they analyze the probabilities related to certain events impacting the members in the system, such as the likelihood of retirement, and the rates of disability, termination, and death, which in turn drive the cost and liability of a pension plan. They also analyze the economic factors that impact the value of benefits and assets, which include inflation, the expected return on assets, and individual salary increase assumptions. A valuation is prepared each year to determine the value of the benefits promised to members through that valuation period, and then that valuation is used to develop funding strategies and to determine the financial impact of any benefit changes due to benefit increases or reductions in future accruals.
An actuarial valuation is an annual snapshot of the assets and liabilities of a pension or retiree health program. As part of the valuation process the actuaries determine the actuarial accrued liability or benefit obligations that have been earned and compare this value to the assets in the pension trust to determine the unfunded liability and funded status of the plan, as well as the employer contribution rate. This helps provide an understanding of the current financial soundness of the pension system, as well as how the funded status of the plan has progressed over the years and how it is expected to progress in the future based on the funding policy. They also analyze changes from the actuarial accrued liability from year to year and identify trends in the funding status and the reason for the change in the contribution rate from one year to the next. As was noted earlier, KRS will not be attaining the 7.5 percent rate of return this year based on the markets and so the actuaries will advise KRS on the impact of not attaining the rate of return on the funded ratio and on the future contributions that will be required. The actuary looks at balancing two items, the projected value of future benefits and the projected financial resources, which not only includes what is in the trust today but what is expected to come in to the trust through investment returns and future contributions. The contributions to a pension plan over time will have to equal the benefits plus the expenses paid out of the trust minus any investment return, so the better the investment returns the lower the contributions that are needed, and conversely, lower investment returns will increase the required contributions.
Ms. Nicholl went over how the actuarial valuation is performed and noted that after gathering all the information, projecting the benefit for each member, and applying assumptions, a comprehensive picture of the funding policy is developed to determine the employer contribution rate. In this process, there are two types of actuarial assumptions, demographic and economic. The actuary makes assumptions as to when and why a member will leave active service, and they estimate the amount and duration of the pension benefits paid. There are also two actuarial methods used. The first is the asset valuation method and when the actuary performs the valuation for KRS they look at the market value of assets, but the market value of assets is expected to have gains and losses each year and the actuary uses a technique of smoothing the investment gains or losses. KRS uses a five year asset smoothing method for investment returns, so that any returns above or below the assumed rate of return are taken over a five year period. Mr. Strom noted that this is a volatility mitigation technique so that the contribution rate does not go up and down so much on an annual basis because of the markets and up and down gains and losses. The second actuarial method used is the cost method, which is the allocation of liability between past service and future service. KRS uses the entry age normal cost method which is the same method used by most public sector retirement plans and is the required method for the new GASB accounting standards that became effective this year. The amortization method is the period used to pay off the unfunded actuarially accrued liability. Effective June 30, 2013, KRS uses a 30-year closed period, which declines each year, and KRS also uses a level percentage of payroll contribution, which takes into account that payroll of the total membership is expected to grow each year and the contributions to pay down the unfunded liability are expected to remain at a level percentage of this growing payroll in future years.
Ms. Nicholl discussed the entry age normal cost method, which allocates cost between past and future service. The normal cost is the value as of the valuation date of one year’s accrual of pension benefits – in other words, a plan wants to fund each year what the active members are earning toward their pension benefit that year, and the value of what they are earning in that year is the normal cost. The unfunded actuarial accrued liability is a comparison between the accrued liability and the value of assets. The actuarially determined contribution is equal to the normal cost plus an amortization payment of the unfunded liability assuming the unfunded liability will be paid off over the 30-year period. The funding process for a member then is the total of the actuarial accrued liability, the annual normal cost, and all future normal costs, equal to the present value of the future benefits, and represents benefits from the date of hire to the date of retirement. The valuation date and the valuation date plus one year equals the annual normal cost. The value of benefits from date of hire to the valuation date is the actuarial accrued liability and the value of normal costs and future normal costs is the present value of all future normal costs.
Responding to a question by Co-Chair Yonts as to how to account for the recession and the decrease in the number of employees and the assumptions made five years ago, Ms. Nicholl indicated that numbers and salaries of active members impacts the plan in two ways. First, from a liability standpoint the fewer the number of active employees the lower the liability will be for the plan in the future, but because the contribution rate is based on payroll and because it is assumed that payroll will increase at 3.5 percent each year, if the number of employees is decreasing you will not meet the payroll growth assumption and will be collecting less contributions, which means the payment for the unfunded liability is less than projected. She said this situation is common across the country, but that it appears to be leveling off as employment and wage growth rebounds. If the 3.5 percent growth in payroll is not a good assumption and should be less, then the contributions will need to go up. She said that if less money is coming in than payments being made there is a liquidity concern and that it is possible to have to sell assets to pay benefits.
Co-Chair Bowen indicated that board member Mac Jefferson, who was unable to be attendance, had submitted questions following his review of the information submitted. One of the questions he asked was whether there was any sensitivity analysis performed on the stated assumptions, which would inform the trustees as to the reasonableness of that stated assumption, or in other words whether a plan’s funded status is reviewed if certain assumptions are not met. Mr. Theilen stated this had been discussed with consultant Cavanaugh McDonald and would be incorporated in the 2015 valuation, but that there has not been a sensitivity analysis performed on the past data discussed at this time. Mr. Thielen said that the experience study addresses this to some extent, and he noted that study is conducted every five years.
Mr. Strom discussed why an actuarial audit is performed, which is to enhance the credibility of the valuation process by providing independent assurance that it was performed in accordance with the Actuarial Standards of Practice; to increase public trust of how the plan is governed; to assess whether the plan is meeting its funding objectives; and to identify and address any errors and to make recommendations for improvement. He said that of the three types of actuarial audits that could be performed, Segal would perform a level two or limited scope audit of KRS. A level two audit has much of the same review as a level one audit; however the actuary is actually reviewing rather than replicating all the results over the test life. In approaching the KRS level two audit, Segal made of a determination of whether the June 30, 2014, valuation report and the most recent experience study were based on accepted actuarial standards, and the final written report will contain a formal opinion of the KRS valuation. The first step is to verify the validity of the data, then a validation of the actuarial calculation processes and benefits valuation is conducted, which provides a detailed analysis of sample life calculations. A written audit report is then prepared with specific findings for each element of the audit, along with a recap of any discrepancies, and an opinion as to the reasonableness of the valuation assumptions, methods, etc. The objective is to provide an opinion and evaluation regarding the reasonableness and accuracy of the valuation results, including accrued liability, normal cost and employer contribution rates, and any improvements that can be made, with comments, comparative tables, and detailed recommendations given on the overall profile of KRS. The draft report of findings will first be provided to KRS and the consulting actuary for review and feedback.
Ms. Nicholl indicated that both the KRS staff and KRS Board have a certain responsibility concerning Segal’s report, but she noted that any feedback on the report by KRS staff will not result in any influence on the report findings.
In response to questions from Co-Chair Bowen concerning actuarial audits of other states, and the intensity of the audits of the other states compared to that for KRS, and the national trend of assumptions on investment returns, Ms. Nicholl indicated it is standard procedure for large state pension systems to have an audit performed at least every 10 years, but that actuarial audits are becoming more prevalent every five years. Ms. Nicholl said that of the types of audits the limited scope audits are more common because they are less expensive, but Segal looks at all the possible combinations of how a member could leave KRS and what benefits are due the member in the three tiers in a limited scope audit. She said that based on their findings they do not know if the investment return assumptions will change. They will look at the investment policy and the capital market expectations and see if the investment return assumption is reasonable. She said that nationally the investment rate of return is coming down, and that while it used to be around 8.0 percent, the typical assumption for public systems is now recommended between 7.5 and 7.75 percent. She noted that when you reduce risk in the asset portfolio the expected return assumption will also decrease. Mr. Thielen added that the National Association of State Retirement Administrators performed a study and that the national average assumed rate of return on investments is about 7.69 percent, so that the assumption used by KRS is roughly in the middle of the national average.
Responding to questions by Representative Thompson, Ms. Nicholl said that the limited scope audit will be as of June 30, 2014, and the draft report would be available in August and they are scheduled to meet with the KRS Audit Committee on August 27. Mr. Thielen indicated that the KRS board would take up the report at its September meeting, and that the projected cost of the audit is $98,500 excluding any additional trips that may be necessary. Ms. Nicholl felt that a limited scope audit will provide the necessary information for analysis and determination.
Responding to questions by Co-Chair Yonts concerning how subjective comments are resolved in a report, Ms. Nicholl said that recommendations have been made in the past and actuaries have to follow the procedures of actuarial practice and guidance on setting assumptions. Mr. Thielen said that, in the RFP and agreement, Cavanaugh McDonald has the ability to respond to opinions and recommendations contained in the report.
Senator Higdon referenced an article in the Courier Journal about the KRS accounting created pension crisis and creating future liabilities by using the five high years for retirement benefits. Ms. Nicholl said that Segal will look at recently retired members and compare their liability to what the liability would have been at retirement over a longer salary range to see if they match.
Responding to Representative Miller, Ms. Nicholl said they would be auditing how the liabilities and contributions are being determined for the plan, and whether the methods used to evaluate them are being applied properly. She said that she was pleased that the 30-year period of amortization period is closed. The 30-year period of amortization came about because the old accounting standards required that annual required contribution had to be based on a period of no more than 30 years; however most systems used the 30-year period. The 30-year amortization is common, and because Segal also helps clients set funding policies, in that work they would like to see unfunded liabilities paid off faster than 30 years. Mr. Thielen said that the KRS board had adopted the 30-year amortization period and was paying it down, and that Senate Bill 2 re-set the 30-year period in 2013.
Responding to a question by Mr. Bennett concerning the employer contribution rate for the next biennium, Ms. Nicholl indicated that Segal would not have input into setting the rate because they only were contracted to look at an audit of the June 30, 2014, results. Mr. Thielen said that he believes the contribution rate will be higher in the next biennium because the assumptions were changed by the board as a result of the experience study, specifically because of the decrease in the assumed rate of return from 7.75 to 7.5 percent, and because the mortality tables were lengthened, both of which impact future liabilities. In addition, it does not appear KRS will be making the 7.5 investment return this year, which will affect the future contribution rate. Ms. Nicholl could not recall how other states that have been audited compared to the contribution rate of KRS; however she said that Wisconsin is one of the few states that is overfunded so the contribution rate is lower. She also said that the Illinois teachers’ retirement plan contribution rate would skyrocket because it has “kicked the can so far down the road.” Mr. Thielen stated that the KERS nonhazardous plan at 21 percent funded is worse off than the Illinois plans.
In response to a question by Representative Linder, Mr. Thielen said it was important for the budget that if KRS is making the assumed rate of return it is easier to budget. If the investment return is not being met the contributions have to make up the difference.
KRS Asset Liability Modeling (ALM) Study
Tony Johnson, Senior Consultant and Head of Midwest Consulting for RV Kuhns, Inc. (RVK), provided company background. RVK is a 30-year old independently owned consulting firm ranked among the top 10 consulting firms in the nation. A large percentage of its clients are state plans. It has served as advisor and investment consultant to KRS for about seven years. RVK presented the key findings from the asset liability modeling (ALM) studies for the five pension plans of KRS.
Ryan Sullivan, Consultant with RV Kuhns, Inc. and based out of the Portland, Oregon Headquarters, discussed asset liability studies, why they are conducted, their importance, and the results of the studies on the five KRS pension plans. Asset liability studies are a tool to gauge the financial health of a plan and the direction it is headed over time. There are three components of any pension plan: 1) the liability or benefit policy; 2) the contribution policy; and 3) the investment policy. The ALM study is considered the gold standard for assessing the health of pension plans. An ALM study is not an actuarial study and not an audit. It is not a prescription of plan benefits and not an implementation plan for asset allocation or class decisions. The studies are not the sole determinant of the final asset allocation that is adopted by a fund.
The objectives of an ALM study is to present valuation results of the plan forward as to the funded status of the plan, including minimum required contributions and the expected return over the next 20 years, and that it projects the asset values based on several portfolios to determine the outcome through time based on the assumptions in the valuation process. An asset liability study estimates the liquidity demands on a plan’s assets and investigates mixes of asset allocation to determine what best protects or increases funding levels while providing adequate liquidity for benefit payments and minimizes risks. If a large percentage of the asset base is being paid out in a given year and needs to be liquidated from the asset portfolio it makes it very difficult to invest in classes that have long term lock up periods such as private equity and real estate.
There are two types of analyses conducted, the deterministic forecast and the stochastic forecast. Mr. Sullivan said that RVK used the latest data, which was from the June 30, 2014, actuarial valuations, and that no assumption changes to the valuation were made and they used the actuarial assumptions from the experience study for the period ending June 30, 2013. RVK assumes the five plans’ benefit policy remains the same throughout the projection period, as well as that the current contribution policy of the state making the full actuarially required contribution each year is assumed to continue, but it does not assume any actuarial adjustments that may take place in the future.
The deterministic analysis is the analysis looked at for each plan. It assumes for the next 20 years that every assumption is met with no uncertainty. It is simple to understand, but not very realistic. The stochastic analysis is the second analysis, which introduces uncertainty into the projections, such as future rates of return and inflation based on RVK’s most recent capital market assumptions. It focuses on funding ratios, payout ratios, and contribution levels and analyzes the probability of full funding and insolvency in 20 years. This analysis is more complex and more realistic. In the stochastic analysis, a wide range of investment portfolios are tested to determine whether the plans are better following a strategy that falls in the category of a higher prospective return with greater risk or in a lower prospective return category with lower risk.
The stochastic analysis tested six portfolios ranging from the most conservative asset allocation portfolio to an aggressive portfolio, and including the current portfolio allocation, and utilized different asset classes in differing percentage amounts to predict funding ratio and payout outcomes. The most conservative portfolio is invested in the intermediate duration core fixed income and the most aggressive portfolio is fully invested in global equity and private equity asset classes.
Mr. Sullivan discussed the results of the more healthy plans in the KRS system, the CERS non-hazardous, CERS hazardous, and KERS hazardous plans. The deterministic results for the CERS non-hazardous plan shows a current value as of June 30, 2014, of $403 million and a 20 year projected value of $737 million (employer contribution only). The current liability for this plan is $9.8 billion and is projected to grow about 50 percent over the next 20 years to $15.1 billion. The assets are $6.5 billion and projected to grow to $11.8 billion over the next 20 years. There are no concerns of liquidity for this plan. The stochastic results for this plan shows there is a probability of full funding in the next 20 years and a significant chance of being better off in 20 years than today. In looking at the statistics of the stochastic summary, continued diversification of plan assets to avoid large market declines while generating the near assumed rate of return will maximize the outcome and should be the focus. Mr. Sullivan said the only way to recognize the benefits of an aggressive portfolio is to stay with it even after a bad year of returns, which is difficult for many investors. The most conservative approach of fixed income will protect assets but will result in increased costs to the employer in the long term because of lower than assumed rates of return.
In reviewing the deterministic summary results for the CERS and KERS hazardous plans the results are similar to the CERS non-hazardous. The current liability for the CERS hazardous plan is $3.3 billion with a projection to grow to $5.1 billion in the next 20 years; assets of $2.1 billion with a projection of $3.9 billion; and the employer contribution of $137 million with a projection of $261 million in 20 years. The payout ratio is projected to be the same over the next 20 years. The conclusions are the same for this plan as the CERS non-hazardous.
The KERS hazardous plan deterministic results reflects an accrued liability of $817 million, projected to grow to $1.4 billion in 20 years, with assets of $560 million with expected growth over the next 20 years to $1.1 billion. The employer’s annual contribution is at $31 million and expected to grow to $70 million. The payout ratio decreases over the 20 years from 10 percent to nine percent. The conclusion would be the same as the previous two plans.
The accrued liability of the State Police Retirement System plan on June 30, 2014, is $681 million with a projection to grow to $754 million over the next 20 years; assets are $261 million with a projected growth to $336 million. The employer contribution of $28 million today is expected to grow to $66 million over the next 20 years and the payout ratio is expected to decrease from 21 percent to 19 percent. The funded ratio of this plan is at 38 percent and is projected to grow to 45 percent over the next 40 years. This is a severely stressed plan. The rate of return for this plan to reach full funding requires 18 percent over the next 10 years and 12 percent over the next 20 years, an unreasonable expectation. This plan faces severe challenges, and investing to improve financial health is not possible. The plan will face liquidity constraints in the near future, making investments focused on active liquidity management and planning a priority.
The KERS non-hazardous plan has accrued liability of $11.6 billion and a 20 year projected growth to $13.1 billion. The assets of the plan are at $2.6 billion and are projected to grow to $4.2 billion over the next 20 years. The current deficit is $9 billion and will only reduce to $8.9 billion over the next 20 years. The payout ratio is at 36 percent with a 27 percent projected growth to a maximum of 54 percent in 2023. The annual employer contribution of $565 million is projected to increase to $1.4 billion. Mr. Sullivan said that the 36 percent payout ratio of the plan would imply that about one-third of assets would need to be sold each year to meet current obligations, assuming there were no contributions, which is prohibitively high. He noted that this is projected to grow rapidly to about 50 percent in 10 years before starting a decline in the latter part of the projection period because the funded ratio is projected to decrease in the next 12 years before beginning to improve and is a direct result of the funding policy and how it works. This plan would require a 25 percent rate of return to reach full funding in the next 10 years and 15 percent over the next 20 years, which are not reasonable expectations. If the assumed rate of return is not met over the next 20 years, the impact would cost the state over $400 million in additional monies. The stochastic summary reflects that there is very little probability of full funding over the next 20 years under any investment approach and there is a significant chance of being in worse condition than today and a probability of depleting assets during the projection period. The fund faces severe challenges with a shortfall of $9 billion. Investments would not significantly improve the financial health of the fund. The plan will face liquidity constraints in the near future. Investment in private equity will be difficult going forward. The plan has exposure in past investments in private equity and real estate and it is difficult for this plan to continue investment in these assets, which hurts the investment outcomes of the plan in the long term.
Responding to a question by Co-Chair Yonts, Mr. Sullivan indicated there are two ways to address the funding situation: 1) by large investment returns; and/or 2) more employees and higher contributions. Mr. Johnson indicated that there is a possibility that the plan would fall to a 15 percent funding ratio, which will increase over time, if allocation is properly done with liquidity in mind and consistent contributions. Mr. Sullivan noted that if the analysis was extended to 30 years the funded ratio would increase considerably, assuming full contributions, because the funding ratio will increase at a much greater rate in the latter rate as contributions compound and the amortization period reaches its end. However, if the actuarially required contributions are not made, it would have a great impact on the analysis and the funding ration of the plan.
In response to a question by Representative Thompson with regard to the reforms made in 2008, Mr. Sullivan stated that the changes in benefits in additional tiers would take a significant period of time to impact the overall funding of the plan because it only affects new employees. The split between the various tiers takes years to reflect any significant change on the plan.
Mr. Sullivan indicated that as it is structured today, they have started the process of lowering the amount of illiquid investment, which is a slow moving process. He said that major changes in the investment strategy were not required.
In response to Representative Linder, Mr. Sullivan stated the RVK uses 20 year projections for all its clients. The ultimate goal is to provide guidance in the asset allocation policy, which requires a long term view.
Responding to Representative Miller, Mr. Sullivan stated that the employee portion of the overall contribution rate in similar state plans varies between 10 and 25 percent, and that Kentucky is not considerably outside that contribution rate.
Responding to Representative Yonts, Mr. Johnson stated that the last six years the equity markets have been unprecedented, which have affected investment strategies that should have worked. Equity is the driver of risk in a portfolio and hedge funds help reduce that risk. He said the common denominator is the amount of volatility of the return over time to lower that risk. Over the recent years, hedge funds have not performed as expected, but in the long term they should help reduce the overall portfolio risk. Mr. Peden stated that KRS would be making some changes in its investment strategies. He said there is confusion around private equity and that KERS non-hazardous will not be investing in private equity and will be using the cash flow from those assets. He noted that private equity is a long term investment and KRS cannot invest for the long term anymore in the KERS non-hazardous because of liquidity concerns.
Representative Kay asked what the Legislature could do in the short term to improve the long term funding situation. Mr. Sullivan said that the only thing that could be done would be to make the annual required contribution each and every year. Mr. Thielen stated that an actuarial analysis was performed on this matter and even if the General Assembly contributed an additional amount over the annual actuarially required contribution it would not affect the fund until reaching a level of $5 billion, which would increase the fund from 21 percent funded to 58 funded. This is because the unfunded liability of the KERS non-hazardous plan is $9.8 billion.
The next meeting of the PPOB will be June 22, 2014, at 12:00 noon. All future meetings will be held on the fourth Monday of each month at 12:00 noon rather than 1:00 p.m.
There being no further business, the meeting adjourned at 4:10 p.m.
Copies of the PowerPoint presentations are on file in the Legislative Research Commission Library.