KRS Board Asked to Rollback Drastic Rate Change

KRS Board Asked to Rollback Drastic Rate Change

Members of the Kentucky Retirement Systems (KRS) Board of Trustees voiced frustration Thursday over a lack of legislation addressing pension concerns for quasi-governmental agencies. In April, Governor Matt Bevin vetoed a bill designed to provide relief. He promised to call a special session to adopt a new version of the legislation, but that has not yet occurred. Legislative leadership says the governor needs to secure more votes in the House.

Senate President Robert Stivers (R-Manchester) and Speaker of the House David Osborne (R-Prospect) stressed again on Wednesday that the onus is on the governor to generate support for the measure. “It’s my understanding that they are closer to that point,” responded Stivers. “As to how close? You’d have to ask them.” Osborne revealed that the governor’s office is still in discussions with legislators. “As of right now, I don’t believe there’s a comfort level that the necessary votes are there to pass that particular proposal,” said Osborne.

At Thursday’s KRS Board of Trustees meeting, John Wade, an Eastern Kentucky University professor, asked the board to reconsider assumption rates it adopted in 2017. That drastic rate change is what led to a massive increase in employer contribution rates for local governments, the state and quasi-governmental agencies, such as health departments and public universities.

Members of the Board of Trustees expressed concern about the status of quasi-governmental agencies, but they insisted they were not the solution. “I want a legislative fix to help these problems,” stated Board Vice Chair Keith Peercy. Others emphasized that the legislature needs to act. “We’re simply a board that fulfilled our statutory duty to do the actuarial analysis,” argued board member John Farris. He maintained it is now the legislature’s turn to do its job.

Additionally, he joined other board members in questioning why they had not been provided a copy of the governor’s proposed bill. Farris contended, “If the staff has the bill, the board should have the bill.”

The KRS Board also voted to change how it calculates benchmarks and to make the tweak retroactive to January 1, 2019. Rich Robben, executive director for the KRS Office of Investments, divulged that the agency reallocated funds for the second quarter of the fiscal year but didn’t make a corresponding correction to benchmarks. He claimed that is why the funds are showing an underperformance.

The board approved a new investment that will mostly involve County Employees Retirement System (CERS) assets. It will provide $75 million to MiddleGround Capital, a private equity firm based in Lexington, for a first-time fund that will focus on acquiring underperforming businesses.

Robben acknowledged KRS has not taken on many private equity (PE) investments, which historically post higher returns but have increased risk. “$300 million is about what we need to deploy to kind of stay where we are in private equity,” admitted Robben. “I think we’ve deployed $70 million last year, and we haven’t deployed any this year in private equity.” He noted that his office has passed on various options for a variety of reasons. “We don’t make a lot of PE investments,” he remarked.

The poorly funded Kentucky Employees Retirement System (KERS) nonhazardous pension system and the State Police Retirement System (SPRS) cannot invest in such funds due to their funding status. Robben acknowledged that, for the other funds, private equity can bring much needed income. “It’s typically the highest returning asset class that we invest in,” he told the board. Instead, KRS made the decision back in June to increase fixed-income investments.

After the board meeting, Perimeter Park West Shareholders met to discuss the building and grounds of KRS offices. It clarified that shares in the property are allocated among systems based on membership — the same manner used to divide administrative expenses. That results in CERS holding 64 percent of the location.