Actuary Presents First CERS-Focused Valuation

The new County Employees Retirement System (CERS) Board of Trustees received its first actuarial valuation. A GRS representative noted that the presentation was the first actuarial report focused solely on the local pension system. “I think this is a real plus,” remarked GRS Senior Consultant Danny White. He confirmed that CERS investment returns far exceeded the assumed rate of return in Fiscal Year 2021, leading to an increase in the system’s funding status. Additionally, he outlined the recommended employer contribution rates for Fiscal Year 2023.

White began the Wednesday afternoon presentation by highlighting the changes House Bill 484 made. The KLC initiative legislators passed in 2020 created an independent CERS Board of Trustees to manage the local pension system. The new board took effect on April 1, 2021. “Sometimes we felt like the CERS retirement funds, even though they were the largest and had the most members, may not have gotten the most attention,” White stated.

The 2021 actuarial valuation included the following information:

  • CERS realized a 25% investment return in Fiscal Year 2021 ‒ much higher than the 6.25% assumed rate of return. The investment boom resulted in $2.5 billion more for CERS than expected.
  • The CERS nonhazardous pension system is now 51.8% funded, and the CERS hazardous pension is 46.7% funded. The nonhazardous and hazardous insurance funds are now 85.4% and 84.3% funded, respectively. The total CERS unfunded liability went from $8.12 billion to $7.68 billion for nonhazardous and from $3.36 billion to $3.28 billion for hazardous.
  • CERS active membership declined 4.8% for nonhazardous and 2.6% for hazardous, and CERS nonhazardous payroll dropped 1.4%. Hazardous payroll increased 1.7% increase, and nonhazardous averaged a 1.1% increase over 10 years.

White remarked that he believed the decrease in membership and payroll resulted from the ongoing pandemic and worker shortage. He stated that he did not expect the change to be permanent and does not believe CERS should modify its current assumed payroll growth rate of 2%. “There’s just a lot of vacancies that need to be filled,” White said. He added that CERS has always maintained a stable employee level and that he anticipates the number will return to normal.

The actuarial valuation recommends employer contribution rates, which the CERS Board of Trustees is statutorily required to follow. White confirmed the rate for CERS nonhazardous employers will drop in Fiscal Year 2023 and increase 5.26% for CERS hazardous employers. He stressed, “The phase-in has been fully implemented for the CERS nonhazardous as well as the hazardous.”

CERS employer contribution rates for FY 2023 will be 26.79% for nonhazardous and 49.59% for hazardous. White anticipated a continuing decrease in future years. “This should be what we hope will be the peak, and then there will be a downward trend,” he told the board. “This is a great story of being fully phased in.”

CERS Board Chair Betty Pendergrass highlighted that the phase-in took only five years, despite the statute calling for 10 years. “I think this is outstanding news,” she said. “I want to emphasize to our employers that the 12% that you were worried about is gone.”

White noted that the slight drop in FY 2023 collectively saved CERS employers $13 million. Pendergrass remarked that a leveling of contribution rates will also help local governments hire and retain employees. The CERS Board will officially set the FY 2023 rates when it meets on December 1.