Kentucky Public Pensions Authority (KPPA) Executive Director Ryan Barrow made his inaugural appearance before the Public Pension Oversight Board (PPOB) on Tuesday in his new role.
Barrow delivered a brief overview of the different plans under the KPPA, including the County Employee Retirement System (CERS), which, along with the other plans, exceeded assumed rates of return for fiscal year 2024.
CERS adopted new asset allocation targets as of July 1. Barrows said the CERS Board of Trustees is still working on the range, which will reset the numbers in the red.
Barrow also broke down cash flow, including investments, which are up, but he warned when the investment income is backed out, there are negatives.
“Not a concern; I think within a range it is reasonable, and they are better funded,” Barrow said of the CERS plans and negative cash flow shown.
Sen. Jimmy Higdon, R- Lebanon, expressed concern about negative cash flow in the KPPA plans.
“This year we reduced our contribution rates, that’s just a comment… the board decided to do that to take those reductions. To me, it is not good when you reduce your rates, and you have a negative cash flow,” Higdon said.
Barrow explained the rate reduction on the CERS side is expected to pan out in an actuarial study that was conducted.
The CERS Board of Trustees approved the employer rates for Fiscal Year 2025 in December of 2023. CERS nonhazardous and hazardous rates will decrease by 3.63 and 5.08 percentage points, respectively. The board took a more conservative approach than what actuaries recommended at the time for the rates of return, as they had historically surpassed the previous 6.25% rate, before the current 6.50%. Wilshire Managing Director David Lindberg supported the conservative change.
“Those expected returns are quite solid from what they were a year and a half ago,” he noted at the board meeting. “You are in a situation where you can comfortably increase that expected level of return, as you’re talking about, and probably do that with a reduced level of risk as well.”
Lindberg stressed that the CERS expected rate of return over 10 years is 7.53%. The 20-year expected rate is 7.71%, and 7.90% for 30 years. He added that Wilshire would monitor investments throughout the year and recommend changes if warranted.
The KLC Board of Trustees has voted to continue to monitor the independence and viability of CERS, KPPA administrative expenses paid by CERS, and the operation and benefits of the local pension system to ensure the system continues to operate efficiently and in the best interest of its employers and members. CERS continues an upward trajectory since separating from the Kentucky Retirement Systems.
