For the first time since the new County Employees Retirement System (CERS) Board of Trustees formed last year, members held their first annual meeting on Wednesday. Board members elected leadership, discussed cost-of-living adjustments (COLAs), and accepted Kentucky Public Pensions Authority (KPPA) Administrative Expense Allocation Work Group recommendations.
“I appreciate the vote of confidence,” said Betty Pendergrass following her reelection as CERS board chair. “I think we have accomplished a lot in the first year, and I look forward to moving ahead and doing some additional interesting projects in this coming year.”
The board also reelected Vice Chair Jerry Powell.
Members agreed with recommendations that the pension systems use four methods to divide administrative expenses. The KPPA Board voted to accept the options from the Administrative Expense Allocation Work Group during their March meeting.
CERS and the Kentucky Retirement Systems (KRS) will divide some expenses by membership percentage, split some at 50% each, divide by the amount of assets under management (AUM), or use a hybrid percentage that incorporates all other options.
CERS Board members agreed to add seven areas to the internal audit plan, a KPPA Joint Audit Committee recommendation. They identified the following areas of potential risk to review:
- All JP Morgan Chase accounts;
- Administrative expenses, including plan-specific expenses;
- Employer contribution process, including the balancing process;
- Cash receipts process;
- Investment manager and performance fee reconciliations;
- Investment reconciliation between BNY Mellon and Great Plains, and;
- The process for investing direct repo.
Bill O’Mara moved, and the board approved, the creation of an ad hoc Personnel Committee. Pendergrass clarified that the panel must be an ad hoc committee until after the June meeting, when the board can approve bylaws allowing for a permanent committee. O’Mara expressed the need to consider the passage of House Bill 297, a KLC initiative that includes required annual performance reviews of KPPA’s executive director.
The new committee will also expedite the needs of any potential search committee and issues related to board conflicts of interest. “It’s better to put into place and ready to go if the situation should arise rather than having to do it ad hoc, on the fly, under pressure,” O’Mara added.
Powell provided a presentation on COLAs for retirees. He reported that, as of June 30, 2021, CERS nonhazardous pensions are funded at 52% while CERS hazardous is at 47%. “The law remains that until there is 100% funding, or the legislature prefunds the COLAs, we are constrained by what the legislature approves,” Powell explained. “The board itself cannot provide a COLA for retirees. It has to be done by the state legislative body either creating an exemption or fully funding the COLAs out of the budget.”
Pendergrass said legislators considered the issue during the recent session because of concerns about rising inflation and a decrease in retiree purchasing power. They could not reach an agreement before they adjourned on April 14.