BRADENTON, Fla. - Kentucky selected PFM Group to perform a comprehensive review of the state's pension systems, some of which are among the worst funded in the country.
PFM's work will include a solvency and liquidity analysis, and a "critical review" of past revenue and expenditures, Gov. Matt Bevin said Monday.
"The findings that will come from this pension fund audit will accurately identify our actual pension liabilities," he said in a statement. "It is our intention to shine the antiseptic light of transparency on the country's worst funded pension system and financially secure the pension system for generations to come."
The project scope will include assessments of outstanding obligations under various actuarial assumptions, and an analysis of best practices and future actions the state can consider "to put the plans on path toward long-term solvency," Bevin said.
The Kentucky Teachers' Retirement System is the state's largest plan, followed by the Kentucky Retirement Systems for state and county employees, and the Kentucky Judicial Form Retirement System, which includes lawmakers.
In a Sept. 12 report, S&P Global Ratings said it found that Kentucky's combined retirement plans had a funded ratio of 37.4% in fiscal 2015, the worst ratio in the country.
S&P said weak market returns in 2015 damped pension funded ratios and soft market results this year may pressure plans to continue to adopt lower discount rate assumptions, pursue higher yields, or reprise attempts for pension reform.
"How pension plans and state governments manage current assets and future contributions is key to the future health of pension systems and state budgets," S&P analysts said.
S&P cut the Bluegrass State's issuer credit rating to A-plus from AA-minus last year citing "the state's demonstrated lack of commitment when it comes to funding its annual contributions."
Of Kentucky's three main plans, KTRS is the worst funded.
Legislators studied reform mechanisms a number of times, but failed to institute any major changes.
The fact that current members aren't covered by social security and their benefits are protected by state law could complicate future reform efforts.
Reforms have been enacted for the employee pension plan.
Bevin, a Republican who took office in December, said addressing the state's underfunded retirement systems is a top priority.
In April, he signed a biennial budget that cut many state agency budgets by 9% and higher education by 4.5%. No taxes were increased.
The savings from trimming state services along with one-time money – including reserves – were used to contribute $1.16 billion above base funding requirements over two years directly to the state's pension systems.
Another $125 million seeded a new "permanent" fund for pension liabilities.
Through an executive order in June, Bevin restructured the employees' pension board as a state agency, saying the move was necessary to improve administration and transparency.
The new KRS Board of Directors replaced the Kentucky Retirement System Board of Directors.
Bevin also appointed four new members with investment experience.