Presentation of December 31, 2018 Valuation Results · July 19, 2019 Presented by: Patrice A....

July 19, 2019

Presented by: Patrice A. Beckham, FSA, FCA, EA, MAAA

Brent A. Banister, PhD, FSA, FCA, EA, MAAA

Presentation of December 31, 2018

Valuation Results

2

Discussion Topics

Background

Detail of Valuation Results

Projections of Future Valuation Results

Risk Assessment and Evaluation (Actuarial

Standard of Practice Number 51) - first time this

has been a part of the report

Build funds during working careers

Investment returns help pay for benefits

Actuarial valuation is mathematical model of financial future of system

Actuarial cost method’s goal, as approved by the Board, is level contributions as percent of payroll

Actuarial Valuation Process

“Reserve Funding”

InputsMembership Data

Asset Data

Benefit Provisions

Assumptions

Funding Methodology

↓Results

Actuarial Value of Assets

Actuarial Liability

UAL/Funded Ratio

Net Actuarial Gain or Loss

Employer Contributions

Projections

3

Events Impacting the

12/31/2018 Valuation Results

Legislation: Senate Bill 9 Senate Bill 9: Additional payment of $115 million in March, 2019

(received)

House Sub for Senate Bill 25

– Repealed additional payment of up to $56 million in FY 2019, if actual

FY 2019 receipts exceed the consensus revenue estimates.

– Instead, directly transferred $51 million to the Fund in FY 2020

(received).

Net investment return of -2.9% on market value of

assets. Due to asset smoothing method, the return

on actuarial assets was +5.3%.

Assumption changes: none

Benefit changes: none

4

Valuation results

All groups remain at the full Actuarial Required

Contribution rate

Overall funded ratio remained the same (68.4% both last

year and this year)

Total unfunded actuarial liability increased from $8.9 billion

last year to $9.2 billion this year

Contribution rates increased for all groups except

State/School due to the investment return in 2018.

– State/School received additional direct contributions which

mitigated the impact of the 2018 return.

Key Findings

5

6

Purpose of Actuarial Valuation

Measurement of Assets and Liabilities

Best Estimate of Ultimate Costs

Project amount and timing of future benefits using

actuarial assumptions

Calculate present value of future benefits

Apply actuarial cost method to allocate benefit cost to

periods of service for each member

Calculate Employer Contribution Rates

FY 2022 for State/School Employers

CY 2021 for Local Employers

Baseline for Legislative studies in 2020 session

7

Demographic Data and

Assumptions

KNOWN at valuation date: ASSUMED at valuation date:

1. age

2. salary

3. gender

4. service to date

5. membership group

1. future salary increases

2. retirement date(s)

3. death rates before and afterretirement

4. disability rates

5. other termination rates

Date of Hire

(Age 30)

ValuationDate

(Age 45)

RetirementDate

(Age 60)

Date of Death

(Age 80)

15 Years15 Years 20 Years

30 Years

8

Total Active and Retired Members(Total System)

0.3% average annual increase in active count since 2004 – 1.6% increase for 2018.

3.8% average annual increase in retiree count since 2004 – 2.9% increase for 2018.

2.9% average annual increase in inactive count since 2004 – 2.5% increase for 2018.

The number of retirees has increased while the active count has remained fairly stable, resulting

in a decrease in the ratio of actives to retirees. This is not unexpected for a mature retirement

system like KPERS. Implications for funding are included in the risk section.

Counts as of December 31

9

KPERS Membership by Tier

KPERS 1: Hired before 7/1/09

KPERS 2: Hired after 6/30/09

and before 1/1/15

KPERS 3 Cash Balance: Hired on/after 1/1/15

49,381

(46%)

23,979

(22%)

34,778

(32%)

State/School Active Membership

KPERS 1

KPERS 2

KPERS 3 Cash

Balance

16,327

(43%)

7,796

(21%)

13,843

(36%)

Local Active Membership

KPERS 1

KPERS 2

KPERS 3 Cash

Balance

Total: 108,138

Total: 37,966

10

Average Salary and Benefits(Total System)

2.0% annual increase in average salary since 2004. 2.9% increase for 2018.

2.6% annual increase in average benefits since 2004. 2.0% increase for 2018.

Note: The increase in average salary includes general wage growth as well as promotion

and longevity increases. The average benefit typically increases over time due to higher

benefit amounts (based on higher salaries) for more recent retirees.

11


Market value not used directly in valuation

Asset valuation method used to smooth the effect of

market fluctuations Goal is to provide more stability in contribution rates

Smoothed value is called “actuarial value of assets” and is

used in all of the measurements in the valuation

Method approved by Board recognizes market

experience above or below the 7.75% investment

return assumption over 5 years

12

Annual Change in

System’s Asset Values ($M)

Market Actuarial

Value at 12/31/17 $ 19,585 $ 19,247

Employer and Member

Contributions 1,442 1,442

Benefit Payments (1,793) (1,793)

Investment Income, Net

of Expenses (564) 1,002

Value at 12/31/18 $ 18,670 $ 19,898

Net Rate of Return -2.9%* 5.3%

* As reported by KPERS

Deferred experience (difference between actuarial and

market value) yet to be recognized

Net deferred loss of $1.2 billion this year vs. $338 million net

deferred gain in last year’s valuation

Final year’s recognition of 2014 experience loss ($248M)

Return of -2.9% on market value for 2018


13

CY Ending: 2018 2017 2016 2015

Millions $: (1,645) 647 25 (256)

$ $ $

14

Impact of Deferred Experience(Total System)

Deferred experience will flow through the asset

smoothing method and be recognized over the

next four years

Because investment experience varies each year, the net

deferred loss of $1.2 billion is not recognized equally

each year, but varies by when the experience occurred

In the next valuation (12/31/19), the remaining balance of

the 2015 experience loss will be recognized ($256M)

Deferred losses will increase the Unfunded

Actuarial Liability and decrease the funded ratio,

absent favorable experience in future years

15

Historical Net Rates of Return

Note: Rates of return are dollar-weighted.

-30%

-20%

-10%

0%

10%

20%

30%

2004 2006 2008 2010 2012 2014 2016 2018

Year End 12/31

Actuarial Value Return Market Value Return Expected Return

16

Total System Assets($ Billions)

Over a long period, the market value is expected to be higher than the actuarial value in

some years and lower in others, as has occurred with KPERS’ smoothing method.

17

Actuarial Cost Method

System liabilities = present value of future benefit

payments expected to be paid

Cost method is a budgeting tool used to fund benefits

Allocates the financing of benefits to time periods before

and after the valuation date Before valuation date: past service cost/actuarial liability

After valuation date: future normal costs

Different methods exist - KPERS uses the most common

method, called the Entry Age Normal method

Funds benefit, as a level percent of pay, from entry age to exit age

for each member

Produces stable cost for each year (normal cost), if assumptions are

met and overall entry age remains the same

Actuarial Funding Method

Present Value of Future

Normal Cost

Present Value of Benefits

Past Service Costor Actuarial Liability

Future Normal Cost

Contr

ibution a

s

% o

f P

ay

Date of Hire Valuation

Date

Date of

Retirement

Current Year

Normal Cost

18

19

Development of 12/31/2018

Unfunded Actuarial Liability

Actuarial

Liability (AL)

($M)

Actuarial

Value of

Assets

($M)

Unfunded

Actuarial

Liability

($M)

Funded

Ratio

State $ 4,527 $ 3,593 $ 935 79%

School 15,431 9,610 5,822 62%

State/School 19,959 13,202 6,756 66%

Local 5,493 3,991 1,502 73%

KP&F 3,457 2,524 933 73%

Judges 192 181 11 94%

Total* $ 29,100 $ 19,898 $ 9,202 68%

* Totals may not add due to rounding

Unfunded Actuarial Liability is amortized using “level percent of

pay” amortization methodology

Payments in future years are scheduled to increase 3%,

consistent with the payroll growth assumption

When the amortization period is longer (25+ years), the dollar

amount of the Unfunded Actuarial Liability increases over more

than half of amortization period, even if full Actuarial Required

Contribution is paid and assumptions are met

The remaining amortization period is now at the point (14 years

remaining) where the legacy Unfunded Actuarial Liability base is

scheduled to decrease each year if the full Actuarial Required

Contribution is paid and all assumptions are met

20

Unfunded Actuarial Liability (UAL)

21

Legacy Unfunded Actuarial

Liability Amortization

The dollar amount of the UAL payment

increases by 3% each year, consistent

with the payroll growth assumption.

Given the number of years remaining

in the amortization period, the

balance of the Legacy UAL steadily

declines.

$-

$1

$2

$3

$4

$5

$6

$7

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Bill

ion

s

Outstanding UAL Balance $-

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032

Mill

ion

s

UAL Payment Amount

Amortization method funds the unfunded actuarial liability

using a “layered” approach since the 2016 valuation

12/31/15 UAL serves as the initial (legacy) base and continues to

be amortized on original schedule, a closed 40-year period,

beginning July 1, 1993 (14 years remain as of 12/31/18

valuation)

Increase in the 12/31/16 UAL due to the assumption changes is

amortized over a closed 25-year period (23 years remaining)

Current and future period UAL changes resulting from actuarial

experience are amortized over closed 20-year periods

Benefit changes can receive separate layers with other

amortization periods

22


23


State/School ($M)

Amortization

Base

Original

Amount

Remaining

Payments

Current

Balance*

Annual

Payment**

Legacy UAL (2015) $6,489 14 $6,242 $610

Assumption Changes (2016) 451 23 457 33

Actuarial Experience (2016) (99) 18 (98) (8)

Actuarial Experience (2017) (430) 19 (429) (34)

Actuarial Experience (2018) 173 20 173 13

Total $6,345 $614

*Current balance is projected to June 30, 2021 when corresponding payments will start.

**Dollar amount of future payments increase is consistent with the payroll growth assumption

of 3% per year.

Any shortfall between the statutory contribution

rate and the actuarial required contribution rate

(ARC) results in an increase in the Unfunded

Actuarial Liability

Other factors also impact the Unfunded Actuarial

Liability

Experience gains/losses

Changes to the benefit structure

Changes in the actuarial assumptions

Changes in the actuarial methods


24

25

Factors Impacting Change in


State/

School

Local KP&F Judges Total

12/31/17 UAL ($M) $6,581.3 $1,458.3 $859.9 $ 7.7 $8,907.2

• Contribution cap/lag 54.9 1.0 8.0 0.2 64.1

• Amortization

method

(126.0) (27.9) (16.5) (0.3) (170.7)

• Investment

experience

316.6 90.7 63.7 4.8 475.8

• Demographic/other

experience

72.7 (20.5) 18.1 (1.7) 68.5

• Additional

Contributions

(143.2) 0.0 0.0 0.0 (143.2)

12/31/18 UAL ($M) $6,756.3 $1,501.6 $933.2 $ 10.7 $9,201.8

Note: Amounts are shown in millions and may not add due to rounding.

26

History of System Funded and Unfunded

Portion of Total Actuarial Liability ($M)

27

Year-over-Year Change

in Funded Ratio

December 31

2018 2017

State 79.4% 80.5%

School 62.3% 61.6%

State/School 66.1% 66.0%

Local 72.7% 72.5%

KP&F 73.0% 74.1%

Judges 94.4% 95.9%

Total System 68.4% 68.4%

Overall, the

funded ratio

for the entire

system held

steady at

68.4%.

Development of Employer

Contribution Rates (12/31/2018 valuation applies to FY beginning in 2021)

28

State School State/School Local

Total Normal Cost Rate 7.59% 8.05% 7.95% 7.50%

Unfunded Actuarial

Liability Contribution 8.38% 13.10% 12.14% 7.37%

Total Actuarial

Contribution Rate

15.97% 21.15% 20.09% 14.87%

Less Member Rate (6.00%) (6.00%) (6.00%) (6.00%)

Employer Actuarial

Required Contribution

Rate

9.97% 15.15% 14.09% 8.87%

Due to the repayment of the delayed contributions from FY 2017 and FY 2019, the

School group has an additional contribution of $25.8M in FY 2020 (0.69%), in FY

2021 (0.68%), and in FY 2022 (0.64%). The additional contributions are scheduled

to occur as level dollar amounts for the next 20 years.

Development of Employer

Contribution Rates (12/31/2018 valuation applies to FY beginning in 2021)

29

KP&F Judges

Total Normal Cost Rate 14.86% 20.48%


Contribution Rate

15.09% 3.57%

Total Actuarial Contribution Rate 29.95% 24.05%

Less Member Rate (7.15%) (5.65%)

Employer Actuarial Required

Contribution Rate

22.80% 18.40%

30

Actuarial vs. Statutory

Employer Contribution Rates(Fiscal Years Beginning in 2021)

December 31, 2018

Actuarial Statutory Shortfall

State 9.97% 14.09% (4.12%)*

School 15.15% 14.09% 1.06%

State/School 14.09% 14.09% 0.00%

Local 8.87% 8.87% 0.00%

KP&F 22.80% 22.80% 0.00%

Judges 18.40% 18.40% 0.00%

* As provided in statute, the contribution above the State Actuarial Required Contribution (ARC) rate will be

used to fund the School Group.

** State/School continues to be at the ARC rate in FY 2022 (12/31/2018 valuation) at 14.09%.

31

Change in Actuarial Required

Contribution (ARC) by Group

State/

School

Local KP&F Judges

12/31/17 ARC 14.23% 8.61% 21.93% 17.26%

• Contribution cap/lag 0.08 0.00 0.11 0.06

• Amortization method (0.00) (0.00) (0.00) (0.08)

• Investment experience 0.48 0.36 0.86 1.50

• Demographic/other

experience

0.00 (0.10) 0.16 (0.44)

• Additional FY19

Payments

(0.29) 0.00 0.00 0.00

• Payroll Growth (0.31) 0.09 (0.27) 0.00

• Changes in Employer

Normal Cost Rate

(0.10) (0.09) 0.01 0.10

12/31/18 ARC 14.09% 8.87% 22.80% 18.40%

32

Employer Contribution

Rate Comparisons

12/31/2017 Valuation 12/31/2018 Valuation

System Actuarial

Rate

Statutory

Rate

Shortfall Actuarial

Rate

Statutory

Rate

Shortfall

State/School 14.23% 14.23% 0.00% 14.09% 14.09% 0.00%

Local 8.61% 8.61% 0.00% 8.87% 8.87% 0.00%

KP&F 21.93% 21.93% 0.00% 22.80% 22.80% 0.00%

Judges 17.26% 17.26% 0.00% 18.40% 18.40% 0.00%

NOTE: The excess of the statutory over the actuarial required contribution rate on State payroll is contributed to the

School group.

33

Components of State/School

Employer Contribution Rates

Projections assume all actuarial assumptions are met in the future.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

20

36

20

37

20

38

20

39

20

40

Valuation Date (12/31)

Employer Normal Cost Unfunded Actuarial Liability Amortization Statutory Rate Actuarial Rate

34

Components of Local


Projections assume all actuarial assumptions are met in the future.

0%

2%

4%

6%

8%

10%

12%

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33

20

34

20

35

20

36

20

37

20

38

20

39

20

40


Employer Normal Cost Unfunded Actuarial Liability Amortization Statutory Rate Actuarial Rate

35

Components of KP&F


Projections assume all actuarial assumptions are met in the future. KP&F employers

have always contributed the full actuarial required contribution rate.

36

Components of Judges


Projections assume all actuarial assumptions are met in the future. . Judges employers

have always contributed the full actuarial required contribution rate.

0%

5%

10%

15%

20%

25%

30%

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

20

32

20

33


Employer Normal Cost

Unfunded Actuarial Liability Amortization

37

FUNDING PROJECTIONS

38

Funding Projections

Not precise predictions but general estimates

Preliminary model results – final review in process

Projections based on many assumptions

7.75% return on market value in calendar year 2019 and

all future years

All other actuarial assumptions met in the future

Current plan provisions in place during projection period

Employer contributions are paid based on the certified

contribution rates (subject to statutory caps) and current

funding policy

New entrants in future years are similar to recent history

39

State/School Funding

December 31, 2018 Valuation Funded Ratio: 66.1%

Actuarial required rate: 14.09%

Statutory rate: 14.09%

Actuarial Required Contribution (ARC) Date/Rate

(actuarial and statutory contribution rates are equal)

occurred in 12/31/2017 valuation at 14.23% Continues to be at full actuarial contribution rate in 12/31/18

valuation

Actuarial contribution rate declined to 14.09%, despite a -2.9%

return in 2018, primarily due to additional contributions made by

the 2019 Legislature

40

State/School Contributions

State/School group first reached ARC date with 12/31/17 valuation and

continues to be at the ARC rate of 14.09% in the 12/31/18 valuation (FY 2022)

0%

2%

4%

6%

8%

10%

12%

14%

16%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


State/School Contribution Rates

Statutory Rates Actuarial Rates

41

Projected State/School


The Actuarial Required Contribution date occurs in FY

2021 at a rate of 14.23% based on the 12/31/2017

valuation. The actuarial contribution rate for FY 2022

declined due to additional contributions by the 2019

Legislature and growth in covered payroll. The rate

increases for the next few years as the deferred

investment losses are recognized, and then remains

stable around 16%.

Assumes all assumptions are met in the future, including a 7.75% investment return on the

market value of assets.

42

State/School Projected


The projected Unfunded Actuarial Liability

last year (blue line) had a steady decline. In

the current year’s projections, the Unfunded

Actuarial Liability increases for a few years,

due to recognizing the deferred investment

loss, and then decreases steadily.

Assumes all assumptions are met in the future, including a 7.75% investment return.

43

State/School Projected

Funded Ratio

Due to the 2018 investment return, the

funded ratio is expected to reach 80% in

2029, three years later than last year’s

projection.


44

Local Funding

December 31, 2018 Valuation

Funded ratio: 72.7%

Actuarial rate: 8.87%


Actuarial Required Contribution Date/Rate

occurred in 12/31/12 valuation (setting the

calendar year 2015 contribution rate)

Continues to be at full actuarial contribution rate in

the 12/31/18 valuation

Actuarial required contribution rate increased from

8.61% in last year’s valuation to 8.87% in this

year’s valuation, primarily due to investment return

below the assumption.

45

Projected Local Employer

Contribution Rates

0%

4%

8%

12%

16%

2019 2021 2023 2025 2027 2029 2031 2033

Fiscal Year End

Local

Projected Employer Contribution Rates

Statutory Actuarial

The contribution rate is projected to increase to around

10.15% due to recognition of the deferred investment

losses. The contribution rate then remains relatively

stable.


46

Local Projected Unfunded

Actuarial Liability


last year had a steady decline. In the

current year’s projections, the Unfunded

Actuarial Liability increases for a few years

before declining, due to recognizing this

year’s investment loss.


47

Local Projected

Funded Ratio

Due to low investment returns, the funded ratio is

expected to reach 80% in 2027, five years later

than last year’s projection.


48

KP&F Funding


Funded ratio: 73.0%



Full Actuarial Required Contribution Rate

contributed each year





0%

5%

10%

15%

20%

25%

30%

2019 2021 2023 2025 2027 2029 2031 2033

Fiscal Year End

KP&F


49

Projected KP&F Employer

Contribution Rates


27% due to recognition of the deferred investment

losses. The contribution rate then remains relatively

stable.


0

200

400

600

800

1,000

1,200M

illio

ns

12/31 Valuation

Prior Year Projection Current Year Projection

50

KP&F Projected Unfunded

Actuarial Liability





before declining, due to recognizing this

year’s investment loss.


0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

12/31 ValuationPrior Year Projection Current Year Projection

51

KP&F Projected

Funded Ratio


expected to reach 80% in 2028, five years later

than last year’s projection.


52

Judges Funding


Funded ratio: 94.4%



Full Actuarial Required Contribution Rate

contributed each year





0%

5%

10%

15%

20%

25%

2020 2022 2024 2026 2028 2030 2032 2034

Fiscal Year End

Judges


53

Projected Judges Employer

Contribution Rates


22% due to recognition of the deferred investment

losses before beginning to steadily decline.


0

5

10

15

20

25

30

Mill

ion

s

12/31 Valuation


54

Judges Projected Unfunded

Actuarial Liability





before declining, due to recognizing the

2018 investment loss.


0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

12/31 Valuation


55

Judges Projected

Funded Ratio


expected to decline to 90% before steadily

increasing. Last year’s projection showed the

plan reaching 100% funded in 2028.


56

Short Term Projections

(Total System)

Return in 2019*

7.75% 0% - 7.75%

Valuation Date

(12/31)

Unfunded

Actuarial

Liability(M)

Funded

Ratio

Unfunded

Actuarial

Liability(M)

Funded

Ratio

Unfunded

Actuarial

Liability(M)

Funded

Ratio

2019 $9,469 68% $9,756 68% $10,043 67%

2020 9,615 69% 10,300 67% 10,984 64%

2021 9,745 69% 10,836 66% 11,927 62%

2022 10,026 69% 11,515 65% 13,011 60%

• Assumes a 7.75% return in all years after 2019 so current deferred investment experience is reflected in

future years. Also assumes delayed contributions for FY 2017 and FY 2019 are repaid as scheduled.

57

RISK CONSIDERATIONS

58

Risk Considerations

Actuarial Standard of Practice No. 51 requires

actuaries to identify and disclose risks faced by

pension plans and sponsors

Risk is related to actual events not occurring as expected

– favorable or unfavorable

This new Standard is first applicable to the 12/31/18

KPERS valuation

Common risks include:

Investment return risk

Demographic risk (mortality is a key)

Contribution risk – insufficient to fund the benefits

59

Risk and Funding Policy

Historical Background

KP&F and Judges have contributed the full actuarial

contribution rate each year

Merger of KPERS and KSRS (pay as you go) in 1971

KPERS (State/School and Local) have contributed less

than the actuarial rate since 1993

Major benefit enhancements added in 1993 with 40 year amortization

of the UAL

Statutory cap which limits annual increase in the contribution rate

was part of the financing plan in 1993. Cap has increased over the

years and is now 1.2%

Local group at ARC date in 12/31/2015 valuation (CY 2015

contribution rate)

State/School group at ARC date in 12/31/2017 valuation (FY 2021

contribution rate)

60

Risk and Funding PolicyState/School Funding

With a 40 year amortization plan, the State/School Group would be about

82% funded if the full actuarial contribution had been made since 1993.

66.1%

82.4%

0%

20%

40%

60%

80%

100%

Ra

tio

Funded Status

Actual Full ARC Each Year

61


Additionally, the merger of KSRS (designed as pay-

as-you-go) into KPERS in 1971 means the

State/School plan has been in a position of trying to

“catch up”, but funding has frequently been less than

the actuarial requirement

State missed $22 million of contributions after the

merger (estimated value of $167 million today)

Contribution less than full actuarial rate since FY 1994

(by legislation)

Unexpected experience resulted in a significant delay

in reaching the actuarial required contribution and

resulted in increases to the amount of the statutory cap

0%

5%

10%

15%

20%

25%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


Local Contribution Rates

Employee Employer Normal Cost Employer Amortization Total Statutory

62


0%

5%

10%

15%

20%

25%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


State/School Contribution Rates

Employee Employer Normal Cost Employer Amortization Total Statutory

State/School just recently had the

statutory and actuarial rates

converge in the 12/31/17

valuation, but that contribution

rate is not effective until 7/1/2020.

The Local group reached the

ARC rate in the 12/31/2012

valuation (calendar year 2015)

and has remained at the full

actuarial rate since.

Any shortfall between the statutory contribution rate

and the actuarial required contribution rate (ARC)

results in an increase in the Unfunded Actuarial

Liability

Shortfall has been significant and has occurred over

a long period

Amounts cannot be added since the measurement

of the shortfall is calculated at different points in time


63

Note: amounts are not additive as they are measured at different points in time.


64

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Mil

lio

ns

December 31

Annual Impact of Statutory Contribution Rate Cap

and Contribution Timing Lag(State/School)

65

Asset Volatility Ratio

The ratio of the Market Value of Assets to the

Covered Payroll Provides an indication of the degree of volatility of contributions in

response to variations in asset returns A higher ratio will have a higher degree of volatility in response to

asset returns

Different reasons that the ratio can be higher or lower, but should

not be considered a “good” or “bad”

Group

Market

Value of

Assets

Covered

Payroll

Asset

Volatility

Ratio

Increase in ARC

with a Return

10% Lower than

Assumed

State/School $12,387M $4,695M 2.64 2.03%

Local $3,752M $1,793M 2.09 1.61%

KP&F $2,362M $532M 4.44 3.42%

Judges $169M $29M 5.93 4.57%

66

Maturity Measure

Retiree vs Total Liability

39.7% 39.7%40.6%

40.9%

40.8%41.3%

41.9%

43.6%

46.3%47.2%

48.5%

49.8%

51.3%

52.3%53.2% 53.4%

31.3%

29.7%30.2%

30.6%30.2% 30.5% 30.8%

32.6%

33.9%

35.6%

37.6%

39.1%

40.2%

41.6%

42.8%

44.2%

46.6% 46.3%45.9% 46.0% 45.9% 45.7%

46.1%47.0%

48.6%

50.1%

51.4%

52.8%

54.0%

55.6%56.2%

57.3%

41.5%

40.3%

42.3%

40.3%

42.0%

43.5%

44.9%

44.2%

46.1%

49.0%

52.3%

55.9%

54.1%

57.7%58.1% 58.4%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Retiree Liability as a Percent of Total Actuarial Liability

State/School Local KP&F Judges

The upward trend is

expected as the

plans mature.

67

Historical Funded Portion

of KPERS Actuarial Liability

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Bil

lion

s

December 31

Historical Funded Status(State/School)

In-Pay Actuarial Liability Not In-Pay Actuarial Liability Market Assets

0

1,000

2,000

3,000

4,000

5,000

6,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Mil

lion

s

December 31

Historical Funded Status(Local)


The Local plan has

comparatively more

assets above the

annuitant liability than

the State/School plan.

68

Historical Funded Portion of KP&F and

Judges Actuarial Liability

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Mil

lion

s

December 31

Historical Funded Status(KP&F)


0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Mil

lion

s

December 31

Historical Funded Status(Judges)


While both plans have assets

in excess of the annuitant

liability, the Judges plan has

been closer to 100% funded in

recent years.

69

Maturity Measure

Retirees per Active

0.42 0.44 0.45 0.45 0.46 0.470.49

0.520.56 0.57

0.590.62

0.650.67

0.70 0.70

0.31 0.33 0.34 0.35 0.360.37

0.340.37

0.390.42

0.440.47

0.490.52

0.540.56

0.53 0.53 0.54 0.540.53 0.54

0.57 0.580.60

0.63 0.650.67

0.700.72 0.72 0.73

0.640.66 0.67 0.67

0.690.73

0.760.78

0.81

0.87

0.92

1.020.98

1.08 1.081.12

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

December 31

Number of Benefit Recipients per Active Member

State/School Local KP&F Judges

The upward trend is

expected as plans

mature.

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Fiscal Year End June 30

Projected Actuarial Contribution Rate(State/School)

7.75% All Years 0.00% CY 2019, 7.75% Thereafter 15.50% CY 2019, 7.75% Thereafter

70

Investment Return Risk

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

As of December 31

Projected Funded Ratio(State/School)

7.75% All Years 0.00% CY 2019, 7.75% Thereafter 15.50% CY 2019, 7.75% Thereafter

A one-time deviation from the

investment return

assumption, either positive or

negative, can have a

significant impact on future

valuation results.

71

Summary of Risk

Evaluation

Different plans have different risk profiles

Funded ratios vary significantly

Asset volatility ratio varies by group

KP&F and Judges will respond to investment experience

with larger increases or decreases in contribution rates

than the State/School or Local Groups

Additional risk information will be available from the

Asset/Liability study

Presentation of December 31, 2018 Valuation Results · July 19, 2019 Presented by: Patrice A....

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