KPPA Board Approves Administrative Expense Allocation

The Kentucky Public Pensions Authority (KPPA) Board agreed on a method of calculating administrative expenses between the County Employees Retirement System (CERS) and Kentucky Retirement Systems (KRS). The decision followed five months of meetings by the Administrative Expense Allocation Work Group. KPPA tasked the group to recommend a way to equitably distribute the bulk of administrative expenses between the two systems.

The group decided on three methods of dividing costs, with the category of expense determining the allocation method:

  1. Use the current formula, which divides expenses by membership, for KPPA staff costs — 65% for CERS and 35% for KRS;
  2. Distribute KPPA executive staff expenses evenly at 50% each; and
  3. Allocate KPPA investment costs by percentage of assets under management (AUM) as of June 30 of the previous fiscal year.

The three are then combined to reach a total percentage applied to all administrative expenses. The CERS aggregate total is 62.39%, while KRS pays 37.61%. The amount is slightly less than what CERS paid in the previous membership-based allocation.

KPPA staff costs allocated by the Fiscal Year 2022 budget equate to $19.3 million for CERS and $10.4 million for KRS. CERS and KRS will each pay $650,000 for KPPA executive staff costs. KPPA investment costs calculated by AUM result in CERS paying $1.5 million and KRS paying $566,160.

Board members agreed to adjust the recommendation for KPPA legal personnel fees. The work group recommended a 50/50 split, but some questioned whether that was equitable. They voted to reevaluate the split following an analysis of advocacy- and nonadvocacy-related costs.

The KRS and CERS Boards of Trustees will determine the split for the plans – hazardous and nonhazardous – under their administrative purview. KPPA will reevaluate the overall CERS/KRS split before the beginning of each fiscal year. This annual review will identify significant costs allocated during the year and determine which method to choose when assigning the expense.