FRANKFORT—Assets in the Kentucky Retirement Systems have increased by $905 million so far this fiscal year with investment gains topping $1 billion year to date, officials told the state’s pension oversight board yesterday.
KRS Executive Director David Eager told the Public Pension Oversight Board that the $905 million increase in assets is like “water in the bathtub,” with more flowing in than flowing out. “It went up $900 million, said Eager.
Investment gains, while below last year’s total of nearly $2 billion, should allow KRS to finish the fiscal year with over $1 billion in new income, Eager said. “We’ve got three months more to tack on here … Hopefully we’ll be up a little more than $1.1 billion by the end of the year.”
Also showing promise are investment returns for KRS so far in fiscal year 2018, with returns for pension and insurance investments up 7.72 percent and 8.02 percent respectively. Eager said those are “attractive returns” which are better than returns in 2016 and slightly below last year’s returns.
Less encouraging to some lawmakers is the cash flow situation at KRS, which has a negative cash flow of -$197 million. Also experiencing a negative cash flow is the Kentucky Teachers’ Retirement System (KTRS) which KTRS Deputy Executive Director Beau Barnes says has a negative cash flow of -$258 million so far this fiscal year.
Both Barnes and Eager explained the negative cash flow as a matter of having not enough cash on hand to meet demand for benefits. One consideration, said Eager, is an imbalance in the number of retirees versus active employees.
“We are in a situation with the KRS non-hazardous plan where we have 5,000 more retirees than we have active people. Pretty hard to have positive cash flow when you’re paying out that level of benefits to that many people,” he said. “It’s a problem – it’s not as big a problem as you might feel.”
Barnes stressed that his system’s negative cash flow is not as threatening as it might sound, adding that KTRS had a negative cash flow of $650 million two years ago.
“This is a very manageable negative cash flow for us,” said Barnes. “We are not, for example, having to avoid certain investments, longer term investments, that we were avoiding when we had the $650 million and growing negative cash flow.”
Board Co-Chair Sen. Joe Bowen, R-Owensboro, said negative cash flows are not something that the state retirement systems should take in stride.
“I want to caution this committee and those here today that we shouldn’t get comfortable with negative cash flow figures even from any type of historical perspective where we did worse,” said Bowen. “We’ve got to move beyond that at some point.”
Another issue facing the state pension systems is a spike in retirements. Eager said KRS retirements are up 1,100 in 2018 compared to 2017, he said, with another spike expected this August. “That’s a real strain on us. Again, we’ll get it done,” Eager told the board.
A brief presentation was also received on the Judicial Form Retirement System, which includes the Judicial Retirement Plan and Legislators Retirement Plan. Judicial Form Retirement System Executive Director Donna Early said some third-quarter results were “lackluster.”