Gov. Matt Bevin’s administration wants a revision of a report estimating the cost of his proposed plan to overhaul the Teachers’ Retirement System of Kentucky — an eye-popping $4.4 billion that startled some of the lawmakers whom Bevin is trying to win over.
On Tuesday, the Bevin administration — which has blocked the release of a similar analysis of how much his bill would cost the Kentucky Retirement Systems — called on actuarial consultants Cavanaugh Macdonald to try again on a report for the retirement system, which provides pensions for more than 50,000 retired educators.
“Cavanaugh Macdonald’s initial analysis of the current pension proposal uses assumptions that are very different from those in its annual valuation reports, including significant changes in retirement patterns and an investment return assumption very different from the rate recently approved by the TRS board,” the governor’s office said in a prepared statement.
The firm’s analysis, released last week, estimated that enacting Bevin’s bill would cost the state $4.4 billion more over 20 years when compared with maintaining the current pension system with full funding. It also predicted that the TRS pension fund would be less funded at the end of the 20-year period: 71 percent funded under Bevin’s bill, compared to 80 percent.
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Bevin’s proposal would cap current teachers’ pension benefits after 27 years of service, freeze cost-of-living adjustments for retirees for five years, switch future teachers from pensions to defined-contribution accounts, and aggressively step up the state’s annual payments toward its unfunded pension liability with a “level dollar” approach.
State budget director John Chilton sent a letter to Cavanaugh Macdonald on Tuesday challenging a list of factual assumptions that he says the actuarial consultants used to support their analysis, including:
▪ That all of the teachers eligible to retire would do so on June 30, 2021, when the proposed pension bill would end its one-time opportunity for longtime teachers to enhance their pension benefits beyond the 27-year mark. Currently, 20 percent of Kentucky’s 42,020 teachers are eligible to retire today, an exodus that Bevin hopes to avoid by offering them that window.
▪ That every teacher after 2021 would retire on a pension at the 27-year mark and wouldn’t continue to work any longer while continuing with a newly opened defined-contribution account, as the pension bill would allow. Many Kentucky teachers presently work for 30 or more years, but nobody knows how that would change under a new retirement system.
▪ That investment returns by the TRS pension fund would average 6 percent a year, whereas the TRS board of trustees has adopted a 7.5 percent assumed rate of return. Chilton raised similar concerns with the assumptions used about the payroll growth rates at school districts and regional universities that belong to TRS.
Chilton also requested that instead of using a 20-year projection, Cavanaugh Macdonald provide a 30-year or 35-year projection that could show how Bevin’s proposed pension bill “contemplates full funding” by the end of that longer period.
TRS general counsel Robert “Beau” Barnes said Tuesday that he hadn’t had a chance to review the letter from the governor’s office. Barnes said TRS paid for the actuarial analysis, and it will discuss the matter with the consultants.
TRS has $18.7 billion in assets to provide pension and health care benefits for retired educators. Its pension funding level rose slightly in 2017 to 56.4 percent, up from 54.6 percent in 2016, the agency said Tuesday. About 135,000 active and retired educators and their beneficiaries are enrolled in the system.
The agency said its unfunded liability now stands at $14.3 billion, compared to an unfunded liability of $26.75 billion at KRS. Combined, the state’s major pension systems have an unfunded liability of $41.05 billion, meaning the agencies have $41 billion more in future pension liabilities than they hold in anticipated assets.
The KRS Board of Trustees was scheduled Monday to review its own actuarial analysis of Bevin’s 505-page proposed pension bill, but Chilton — a Bevin appointee who sits on the board — said he wouldn’t release it. In a statement issued later Monday, the governor’s office said that analysis would be released at a later date, after Chilton and his staff have a chance to review it and request changes to it.
Bevin hasn’t announced when he plans to call a special session of the General Assembly to vote on changes to the state’s ailing pension systems. Bevin has said he is confident that he has enough votes in the legislature to pass his pension bill; Republican members of the House have cast doubts on that.