A publication of the Kentucky Center for Public Service Journalism

Budget director to call on Cavanaugh Macdonald to redo Teacher Retirement System pension bill analysis

State Budget Director John Chilton will call upon Cavanaugh Macdonald to redo its analysis of the Teacher Retirement System (TRS) pension bill utilizing a more appropriate set of assumptions for comparative purposes.

Cavanaugh Macdonald’s initial analysis of the current pension proposal uses assumptions that are very different from those in its annual valuation reports, including significant changes in retirement patterns and an investment return assumption very different from the rate recently approved by the TRS Board. The request for the recalculation recognizes that there will be certain assumption changes based upon the pension proposal, but the changes by Cavanaugh MacDonald regarding assumed investment returns and future retirement patterns were significant departures from those used in prior valuations.

John Chilton

Furthermore, while the statutes require a 20-year analysis, the State Budget Director will request the analysis be extended to 30 years so that the long-term effects of the pension proposal can be modeled within the 30-year amortization period contained within the legislation.

“The actuarial assumptions in Cavanaugh Macdonald’s most recent report are significantly different from those in the actuarial calculations provided to our consultants during the planning process,” said State Budget Director John Chilton. “In the past, a lack of realistic and rational actuarial assumptions helped obscure the distressed financial status of the plans and contributed to the long-term unsustainability of the plans. We will ask Cavanaugh Macdonald to prepare calculations with several alternative assumptions so that policy makers can make informed decisions based on scenarios that include realistic assumptions and that are satisfactorily reconciled with those that Cavanaugh Macdonald provided in the past.”

Actuarial calculations help to inform policy makers as they consider proposals in the legislative process. Neither Cavanaugh Macdonald nor any other firm sets policy for Kentucky. Firms need to provide the full scope of information necessary to help understand how the future might look. There is no one single scenario that can be known in advance, and a recalculation of the analysis based upon the request provided by Director Chilton will provide a more complete picture of what the possible outcomes will be realized from the pension proposal.

From Office of State Budget Director

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One Comment

  1. Tom Coe says:

    It seems that Bevin’s Admin and Cavanaugh Macdonald disagree as to assumptions made for future projections. Bevin basically wants the same figures used that he supplied to the PFM group for their ground-breaking study. For some reason, I want to trust Cavanaugh Macdonald in this situation…

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