View
217
Download
2
Category
Preview:
Citation preview
Kentucky Retirement Systems Overview
Presented to the
Central Kentucky AGA
September 12, 2013
Kentucky Retirement Systems (KRS) Facts
• KRS administers retirement benefits for more than 334,000 state and local government employees – These employees include state employees, state police officers, city and county employees, local agency employees, and nonteaching staff of local school boards and regional universities.
• KRS administers three plans:– Kentucky Employees Retirement System (KERS)
• KRS 61.510 to 61.705 and KY Administrative Regulations, Title 105
– County Employees Retirement System (CERS)• KRS 78.510 to 78.852 and KY Administrative Regulations, Title 105
– State Police Retirement System (SPRS)• KRS 16.505 to 16.652 and KY Administrative Regulations, Title 105
2
Plan Administration• A thirteen-member Board of Trustees administers the
Systems:– Two trustees elected by KERS members– Three trustees elected by CERS members– One trustee elected by SPRS members– Six trustees appointed by the Governor
• One must be knowledgeable about the pension requirements on local governments• Two must have at least 10 years of investment experience• One each from lists of nominees submitted by the KY League of Cities, the KY Association of
Counties, and the KY School Boards Association– The Secretary of the Kentucky Personnel Cabinet, ex officio
• The Board appoints an Executive Director to act as the Chief Administrative Officer of the Board
• KRS reports for budget purposes to the Kentucky General Assembly
3
Plan Administration
• The following standing committees are created in the bylaws of the KRS Board of Trustees:– Administrative Appeals Committee – Disability Appeals Committee– Audit Committee– Investment Committee– Legislative and Budget Committee– Human Resources Committee– Retiree Health Committee – Legal, Compliance and Governance Committee
• The members and the chair of each standing committee are appointed by the chair of the KRS Board of Trustees
• The chair of the KRS Board of Trustees or the Board may also create ad hoc committees, as needed
4
KRS Membership by System and Status As of June 30, 2012
TOTAL 117,589 8,784 2,331 189,006 16,467 334,177
5
TOTAL
107,353
139,352
87,472
Source: June 30, 2012 Comprehensive Annual Financial Report
KERS Non-Hazardous KERS Hazardous SPRS CERS Non-Hazardous CERS Hazardous
Active 41743 4007 904 83658 9040
Inactive 39338 2597 224 63280 1914
Retired 36508 2180 1203 42068 5513
10,000
30,000
50,000
70,000
90,000
110,000
130,000
150,000
170,000
190,000
KRS Current Assets and Benefit Payments
• As of March 31, 2013 KRS assets were $14.7 billion
• KRS pays $2 billion in pension and insurance benefits each year– 95% of benefit payments are delivered to Kentucky residents and
have a significant impact on the Kentucky economy
6
Source: June 30, 2012 Comprehensive Annual Financial Report
How is KRS Funded?
• There are three (3) sources of funding for Kentucky Retirement Systems:– Employee Contributions:
• Set by statute– Employer Contributions:
• Set annually by the KRS Board of Trustees based on an independent actuarial valuation and recommendation
– Return on Investments• The KRS Investment Committee has the authority to make
investment decisions and hire external investment managers and consultants
• KRS utilizes internal investment staff, external investment managers, and independent investment consultants to conduct the investment program
7
How is KRS Funded?The Majority of KRS Funding Comes from Return on Investments
8
Employee 12%
Employer 20%
Investment Income 68%
NOTE: These figures were calculated using only the PENSION fund data found in the June 30, 2011 Comprehensive Annual Financial Report
Public Pension Fund Revenue Sources United States, 1982 to 2009
9
Sources: US Census Bureau and the National Association of State Retirement Administrators (NASRA Issue Brief: Public Pension Plan Investment Returns, published October 2011). The US Census Bureau first began reporting public pension fund revenue data in 1982.
In-vestments;
58%
Em-ployee
Contri-bu-tion
s; 14%
Em-ploy
er Contri-bu-tion
s; 28%
Actuarial Basics
• Funding Level– Ratio of Actuarial Assets to Actuarial Liabilities– Measure of the plan’s financial soundness– Provides a “snapshot” of the plan’s ability to meet
liabilities (benefits) earned to date– Actuarial funding level is based on a 5-year
smoothing method
10
Actuarial Basics
11
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.569 0.525 0.45 0.383000000000001 0.333000000000001 0.273
Market 0.609000000000001 0.499000000000001 0.336000000000001 0.318000000000001 0.317000000000001 0.262
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
KERS Non-hazardous PENSION
Actuarial Basics
12
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.119 0.111 0.119 0.106 0.106 0.143
Market 0.128 0.106 0.081 0.0830000000000001
0.101 0.138
1.0%
3.0%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
KERS Non-hazardous INSURANCE
Actuarial Basics
13
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.836000000000001 0.813 0.745000000000002 0.731000000000001 0.708000000000001 0.661000000000002
Market 0.914 0.784 0.577000000000001 0.645000000000002 0.708000000000001 0.635000000000002
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
85.0%
95.0%
KERS Hazardous PENSION
Actuarial Basics
14
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.498000000000001 0.532 0.614000000000002 0.637000000000002 0.651000000000002 0.899
Market 0.556 0.497000000000001 0.447 0.55 0.633000000000002 0.867000000000002
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
85.0%
95.0%
KERS Hazardous INSURANCE
Actuarial Basics
15
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.821 0.785 0.714000000000001 0.656000000000002 0.631000000000002 0.607000000000001
Market 0.873000000000002 0.744000000000002 0.547 0.57 0.625000000000002 0.588
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
85.0%
95.0%
CERS Non-hazardous PENSION
Actuarial Basics
16
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.288 0.326000000000001 0.396000000000001 0.409 0.466 0.638000000000002
Market 0.325000000000001 0.309000000000001 0.292 0.347 0.472 0.607000000000001
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
CERS Non-hazardous INSURANCE
Actuarial Basics
17
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.742000000000002 0.729000000000001 0.679000000000003 0.655000000000002 0.622000000000002 0.581
Market 0.795 0.685 0.512 0.564 0.616000000000002 0.558
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
85.0%
CERS Hazardous PENSION
Actuarial Basics
18
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.312000000000001 0.347 0.409 0.414 0.468 0.607000000000001
Market 0.346 0.326000000000001 0.303 0.35 0.47 0.577000000000001
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
CERS Hazardous INSURANCE
Actuarial Basics
19
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.637000000000002 0.598 0.548 0.497000000000001 0.45 0.401
Market 0.687000000000001 0.575000000000001 0.426 0.433 0.441 0.391000000000001
5.0%
15.0%
25.0%
35.0%
45.0%
55.0%
65.0%
75.0%
SPRS - PENSION
Actuarial Basics
20
Summary of Actuarial Funding Level (2007 – 2012)
Source: June 30, 2012 Comprehensive Annual Financial Report
2007 2008 2009 2010 2011 2012
Actuarial 0.266 0.279 0.339000000000001 0.279 0.282 0.373000000000001
Market 0.306 0.274 0.257 0.24 0.291 0.376000000000001
2.5%
7.5%
12.5%
17.5%
22.5%
27.5%
32.5%
37.5%
SPRS - INSURANCE
Actuarial Basics
• Unfunded Actuarial Liability (UAL)– Difference between current value of assets and
liabilities– Represents liabilities on benefits already earned by
employees and retirees– UAL is amortized over a 30 year or shorter period,
much like a home mortgage– The amortized payment is a part of the employer
contribution rate
21
KERS/SPRS 2012 Unfunded Liabilities
(in billions of dollars)
System Pension Insurance Combined Pension Insurance Combined
KERS Non-
Hazardous$8.26 $2.68 $10.94 $7.46 $3.82 $11.28
KERS Hazardous $0.26 $0.04 $0.30 $0.21 $0.18 $0.39
SPRS $0.39 $0.21 $0.60 $0.35 $0.32 $0.67
TOTAL $8.91 $2.93 $11.84 $8.02 $4.32 $12.34
22
Source: June 30, 2011 and June 30, 2012 Actuarial Valuations
2012 2011
CERS 2012 Unfunded Liabilities (in billions of dollars)
System Pension Insurance Combined Pension Insurance Combined
CERS Non-
Hazardous$3.59 $0.86 $4.45 $3.29 $1.64 $4.93
CERS Hazardous $1.26 $0.54 $1.80 $1.08 $0.88 $1.96
Total $6.65 $1.40 $6.25 $4.37 $2.52 $6.89
23
Source: June 30, 2011 and June 30, 2012 Actuarial Valuations
2012 2011
What Caused the Increase in Unfunded Liabilities?
24
1. Reductions to Employer Contribution Rates in KERS and SPRS• $2.86 billion contribution shortfall over the past 20 years
2. Cost Inflation for Retiree Insurance
3. GASB 43/45
4. Benefit Enhancements
5. Retiree COLA increases not pre-funded
6. 2000-2002 and 2008-2009 Market Losses
KERS Unfunded Liability Attribution
25Chart prepared by Cavanaugh & McDonald Consulting LLC
What Action Has Already Been Taken to Address These Issues?
2004 Changes:– Employees hired on or after July 1, 2003 earn health insurance
benefits based upon dollar value• Non-Hazardous: $10/month for each year of actual service• Hazardous: $15/month for each year of actual service
– Purchases• Purchases after 8/1/2004 do not count towards vesting for health
insurance benefits• Purchases made by new hires after 8/1/2004 will not count
towards vesting for retirement eligibility• Purchase factor methodology reviewed and amended in 2005
26
What Action Has Already Been Taken to Address These Issues?
2006 Actuarial Experience Study:– Modified actuarial assumptions related to retiree health
premium increases, retirement rates, and life expectancies will increase rates
– Eventually, GASB 43/45 and changes in actuarial assumptions (including the expected continuation of retiree health premium inflation) and COLAs will exceed changes made to stabilize rates
27
What Action Has Already Been Taken to Address These Issues?
2008 Changes:
• House Bill 1 (2008 Special Session) made significant changes to retirement benefits for employees who begin participating with KRS on or after September 1, 2008
• HB 1 also had provisions affecting current employees and retirees– COLA at 1.5% instead of based on CPI-U– Service Purchase costs now include COLA and are calculated on earliest retirement date member can
retire with an unreduced benefit– Retired/reemployed changes for employees returning to work on or after September 1, 2008
regardless of the employee’s retirement date
• HB 1 amended KRS 61.565 to create a phase-in schedule for paying 100% of the Actuarially Required Contribution rates
– If the General Assembly adheres to the schedule, all participating agencies will be required to pay the full employer contribution by 2025
28
Senate Bill 2 (2013)
• Funding Provisions– 100% of Actuarially Required Contribution (ARC)
for KERS and SPRS beginning FY 2015
– No COLAs unless: 1) Pre-funded; 2) KRS determines plan surplus so that COLA will not reduce funding below 100%
– Pension Spiking Prohibited
– Hybrid Cash Balance Plan
30
KENTUCKY RETIREMENT SYSTEMSINVESTMENT PROGRAM
Transparency / Web Site Update
31
• Address: www.kyret.ky.gov• Information available:
Latest Investment Performance Information and News
Consultant Reports (new)
Board and staff contact info
5 years of Comprehensive Annual Financial Reports
5 years of Annual Financial Statements
5 Years of Audits
Corporate Documents and Policies
Committee Assignments
Board and Committee Meeting Dates, Agendas, and Minutes
Investment Holdings and Commissions
Sections for Actives and Retirees
……. and more
Staff Educational Qualifications (10 staff)
• Traditional Education – Advanced Degrees– 7 MBA’s
– 2 MS Finance
• Industry Certifications– 2 Chartered Financial Analyst (CFA) Charter holder
• 3 CFA Candidates (6 covered by CFA Code of Ethics)
– 4 Chartered Alternative Investment Analysts (CAIA) • 1 CAIA Candidate
– 1 Certified Treasury Professional (CTP) • 1 CTP Candidate
– 1 Financial Risk Manager (FRM)• 1 Financial Risk Management Candidate
Designations previously held: Licensed International Financial Analyst (LIFA), 6,7,63,65, Life and Annuity, Chartered Mutual Fund Counselor
32
Asset Allocation Targets (Effective January 1, 2013)
33
KRS Pension Fund - Asset Allocation
Asset Class Benchmark
Target Allowable Range
(+/- Target)KERS
KERS Hazardous
CERSCERS
HazardousSPRS
US Equity Russell 3000 22.0% 20.0% 20.0% 20.0% 20.0% 5.0%
Non US Equity MSCI ACWI Ex-US Standard 20.0% 20.0% 20.0% 20.0% 20.0% 5.0%
Emerging Market MSCI Emerging Markets 0.0% 4.0% 4.0% 4.0% 4.0% 2.0%
Core Fixed Income Barclays US Aggregate 10.0% 9.0% 9.0% 9.0% 9.0% 3.0%
High Yield Bonds Barclays US High Yield 5.0% 5.0% 5.0% 5.0% 5.0% 2.0%
Global Bonds Barclays Global Agg 5.0% 5.0% 5.0% 5.0% 5.0% 2.0%
Real Estate NCREIF ODCE 3.0% 5.0% 5.0% 5.0% 5.0% 3.0%
Absolute Return HFRI Diversified FOF 10.0% 10.0% 10.0% 10.0% 12.0% 3.0%
Real Return CPI + 300 bps 10.0% 10.0% 10.0% 10.0% 10.0% 3.0%
Private Equity Russell 3000 + 400 bps (lagged) 10.0% 10.0% 10.0% 10.0% 7.0% 5.0%
Cash Cit Grp 3-mos Treasury Bill 5.0% 2.0% 2.0% 2.0% 3.0% 2.0%
Pension Asset Allocation Statistics
34
As of March 31, 2013
Fiscal and Calendar Year Pension Returns
35
KRS Pension Fund
Fiscal Year Return1990 11.67 1991 8.24 1992 11.67 1993 12.16 1994 1.02 1995 18.99 1996 17.63 1997 24.16 1998 20.76 1999 14.27 2000 6.41 2001 (5.41)2002 (4.30)2003 4.29 2004 13.58 2005 9.26 2006 9.68 2007 15.27 2008 (4.22)2009 (17.21)2010 15.78 2011 18.96 2012 0.14
2013 (to Mar) 11.40
KRS Pension Fund
Calendar Year Return1990 1.39 1991 21.79 1992 8.77 1993 7.40 1994 1.24 1995 26.91 1996 16.54 1997 23.27 1998 18.08 1999 14.08 2000 (2.69)2001 (3.31)2002 (6.81)2003 20.02 2004 10.92 2005 6.41 2006 13.98 2007 6.58 2008 (23.91)2009 19.66 2010 12.93 2011 (0.44)2012 12.88
2013 (to Mar) 4.01
Performance as of: March 31, 2013
36
March 2013Account / Group % Mgr Bmark Mgr Bmark Mgr Bmark Mgr Bmark Mgr Bmark Mgr Bmark Mgr Bmark
Total US Equities Less Equitization 20.6% 3.92 3.92 18.69 18.29 14.13 14.56 12.79 12.97 6.51 6.32 9.28 9.15 11.16 10.84 Equitization 0.0% - -- 30.12 -- 20.01 -- 14.15 -- (15.66) -- -- -- (6.02) --Total US Equities 20.6% 3.92 3.92 18.72 18.29 14.14 14.56 12.82 13.06 6.53 6.50 9.28 9.43 11.16 11.07
Total Non-US Equities (Less O verlay) 19.8% 0.47 0.25 18.21 17.55 8.51 8.87 4.00 5.03 1.00 0.30 10.00 10.50 2.17 2.71 Record Currency Management 0.0% -- -- -- -- -- -- -- -- -- -- -- -- -- --Total Non-US Equities (With O verlay) 19.8% 0.47 0.25 18.22 17.55 8.46 8.87 3.06 5.03 0.60 0.30 9.76 10.50 1.96 2.71
Total Emerging Market Equity 3.0% (0.96) (1.70) 14.79 12.15 7.24 2.30 -- -- -- -- -- -- 3.13 (3.14)
Total Equity 43.5% 1.95 1.74 18.32 17.45 11.23 10.91 8.09 8.64 3.83 3.24 8.93 8.98 10.88 10.71
Total Fixed Income 20.3% 0.46 0.12 5.74 2.67 7.98 4.72 7.93 6.23 6.04 5.52 5.51 5.36 8.25 7.98
Total Real Return 10.2% 0.39 0.51 5.21 3.71 7.60 4.51 -- -- -- -- -- -- 9.85 4.82
Total Absolute Return 10.2% 0.44 0.28 8.78 5.60 8.05 4.20 4.34 2.42 -- -- -- -- 4.34 2.42
Total Real Estate 2.9% 2.79 2.68 9.46 8.00 11.67 10.78 13.93 12.38 6.97 2.00 6.49 8.37 5.54 7.48
Total Private Equity 10.7% 1.57 1.58 7.79 6.24 14.17 21.05 13.19 11.36 3.87 7.98 12.02 9.28 10.99 -
Cash 2.2% 0.02 0.01 0.25 0.06 0.32 0.08 0.47 0.09 0.89 0.31 2.21 1.66 4.19 3.73
Total Pension Fund 100.0% 1.28 1.18 11.40 10.13 10.03 9.50 8.29 8.13 4.69 4.95 7.68 7.85 9.52 9.59
Absolute Return
Real Estate
Total Private Equity
Total Cash
Total Pension Fund
U.S. Equities
Non-U.S. Equities
Emerging Market Equities
Total Equity
Fixed Income
Real Return
Kentucky Retirement Systems - Pension Fund
Mar-13 FYTD 1 YR 3 YR 5 YR 10 YR Since Inception
Investment Allocation Examples
$ Plan Allocation $ Plan Allocation
KERS¹ - 0.0000% 7,520,000 18.2400%
KERSH² 4,710,000 5.9811% 4,170,000 10.1000%
CERS 55,160,000 70.0420% 18,210,000 44.1500%
CERSH 17,190,000 21.8258% 9,850,000 23.8800%
SPRS 1,690,000 2.1511% 1,500,000 3.6300%
Total 78,750,000$ 100.00% 41,250,000$ 100.00%
Note: The information above is presented based on the proposed contractual structure for the initial three years of the program.
Bay Hills Emerging Partners III Preliminary 2013 Plan Allocations
Pension Insurance
$ Plan Allocation $ Plan Allocation
KERS - 0.0000% 1,304,000 14.17%
KERSH 1,244,000 5.9811% 977,000 10.62%
CERS 14,569,000 70.0420% 4,245,000 46.14%
CERSH 4,540,000 21.8258% 2,306,000 25.07%
SPRS 447,000 2.1511% 368,000 4.00%
Total 20,800,000$ 100.00% 9,200,000$ 100.00%
Rubenstein Properties Fund II Plan AllocationsPension Insurance
Investment Allocation Examples (con’t)
Table A-3: Allocation Analysis Pension KERS $14,303,305 0.20%KERSH $2,549,616 0.50%CERS $28,704,773 0.40%CERSH $9,076,675 0.50%SPRS $1,265,631 0.60%Insurance KERS $2,324,444 0.50%KERSH $1,831,117 0.50%CERS $7,885,941 0.30%CERSH $4,362,222 0.50%SPRS $696,276 0.50%Sum Total $73,000,000 0.10%
Investment Expense Allocations
All investment management costs are allocated at the individual manager level and are therefore only paid by a system, or the systems, that have an allocation to that specific investment manager.
As each Retirement Plans ownership percentage of every underlying manager is known, when investment management fees are paid from the individual account, each plan pays only their proportionate share.
Administrative expenses are allocated based on each plans individual membership count divided into the total KRS member count and is changed on an annual basis.
Recommended