Retirees living longer expected to add to pension costs
FRANKFORT, Ky. (AP) — Rising life expectancy for retirees who worked for state or local governments will add to Kentucky’s mounting pension costs, a pension oversight board was told Monday.
Updated demographic figures were presented to the state’s Public Pension Oversight Board showing retirees — both men and women — are expected to live longer.
The new assumptions put more pressure on one of the country’s worst-funded public pension systems. Retirees living a handful of years more, on average, than had been expected will draw benefit checks longer, resulting in higher contributions by employers in the plans.
“People are gonna live longer,” Kentucky Retirement Systems executive director David Eager told the oversight board. “A retiree lives longer today than we expect they would. And a 45-year-old is going to live longer than a 65-year-old. And that’s never been factored in, but we’re factoring it in for the first time.”
The new assumptions will increase the liability of the primary pension funds for state and local governments, GRS Retirement Consulting adviser Danny White said.
Contribution rates are expected to increase next year as a result for employers in state government as well as those enrolled in the main local government pension fund.
Republican Sen. Jimmy Higdon said the updated demographic figures are a “step in the right direction” as Kentucky governments confront rising pension costs.
If better assumptions had been made years ago, governments would probably still face unfunded liabilities, but “they wouldn’t be at the magnitude that they are now,” he said.
“It looks bad on paper because it increases our unfunded liability,” Higdon told reporters afterward about the new figures. “That’s a bad thing. But the good thing is it forces us to make increased payments to pay for that fact that people are living longer.”
Early next year, when state lawmakers convene a session dominated by work on a new two-year state budget, the demand to come up with the money to meet the higher pension contribution rate is “going to be painful,” he said.
Lawmakers are facing a shorter-term pension issue as well.
Republican Gov. Matt Bevin recently vetoed a bill aimed at giving relief to some state-funded agencies struggling with ballooning retirement payments. The governor has said he intends to call lawmakers back to the Capitol before July 1 to pass another version.
The vetoed measure was intended to give regional universities, county health departments and many other agencies relief from a spike in pension costs they face on July 1.
Higdon said it’s up to the governor to prepare a new bill with enough support to pass the GOP-dominated legislature, which is a “lesson learned from past special sessions.”
When asked what talks are going on about special session, Higdon replied: “To my knowledge, the only talks going on would be with the governor and his people. I don’t know of anybody in the General Assembly who’s been in contact or talked about the special session.”
Bevin has had a turbulent time in trying to revamp the state’s strapped pension systems. In 2018, he called lawmakers back for a special session to vote on a pension bill that had been struck down by Kentucky’s Supreme Court. Lawmakers adjourned without passing any bills. Taxpayers were left with a bill of about $120,000 for the two-day session.