KENTUCKY RETIREMENT SYSTEMS

05 RS BR 1248... ACTUARIAL COST ANALYSIS (REVISED)

HB 318

I. PROPOSED REVISION

KRS 61.592(1) shall be amended to include as a hazardous duty position individuals with duties involving the collection, handling and removal of refuse, yard waste and recycled items, including hazardous materials, and the operation of heavy equipment under all traffic and weather conditions.

II. COMMENTS RELATIVE TO PROPOSED REVISION

As long as the proper employer and member contributions are made, then there should be no noticeable impact on the system for classifying such job positions as hazardous coverage. However, to the extent that this change in classification advances the payment of post retirement medical premium benefits, then there could be some added cost to the system. In this case, total service is unaffected, but the split between hazardous and nonhazardous service is affected. Given the more generous medical premium benefit under the hazardous coverage, a switch of service credit from nonhazardous to hazardous could increase overall medical premium liability. As noted below, hazardous rates are over 14% of payroll higher than non-hazardous rates for CERS, so a conversion to hazardous status will increase payroll costs at least 14% for the individual participants affected. It will also encourage earlier retirement ages, potentially leading to staffing cost issues.

We have not considered the validity of considering such job positions as hazardous coverage positions.

III. ESTIMATED IMPACT ON FUNDING COSTS

This bill would have negligible cost impact on hazardous contribution rates themselves, but we note that hazardous contribution rates are at 25.1% of payroll, 14.03% of payroll higher than non-hazardous rates for CERS. This difference will grow to nearly 22% of payroll by 2016, a rate of 47.47% of payroll. Payroll cost will increase significantly for all groups converted to a hazardous classification. In addition, we expect an increase in the ultimate medical premium liability cost, but actual impact cannot be determined from available information.

The following charts show the most recent projections of CERS contribution rates through 2016:

Nonhazardous

Fiscal Year
Beginning 7/1 / Retirement
Contribution
Rate / Insurance
Contribution
Rate / Total
Contribution
Rate
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 / 4.55%
5.67%
6.27%
6.53%
6.63%
6.78%
6.90%
7.01%
7.11%
7.22%
7.35%
7.47% / 6.43%
7.25%
8.11%
9.01%
9.95%
10.93%
11.97%
13.07%
14.24%
15.48%
16.82%
18.31% / 10.98%
12.92%
14.38%
15.54%
16.58%
17.71%
18.87%
20.08%
21.35%
22.70%
24.17%
25.78%

Hazardous

Fiscal Year
Beginning 7/1 / Retirement
Contribution
Rate / Insurance
Contribution
Rate / Total
Contribution
Rate
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016 / 11.22%
12.58%
13.44%
13.92%
14.09%
14.39%
14.81%
15.24%
15.57%
16.07%
16.38%
16.71% / 13.79%
14.87%
16.02%
17.22%
18.48%
19.83%
21.28%
22.84%
24.54%
26.39%
28.42%
30.76% / 25.01%
27.45%
29.46%
31.14%
32.57%
34.22%
36.09%
38.08%
40.11%
42.46%
44.80%
47.47%

IV. ACTUARIAL CERTIFICATION

Calculations of the estimated cost impact as summarized in Section III have been based on the same data, actuarial assumptions, methods and plan provisions as used in the June 30, 2004 actuarial valuation, unless otherwise stated. This statement is intended to provide an estimate of the cost impact of proposed revisions noted in Section I, and does not necessarily address the appropriateness of making such revision.

______

K. Eric Fredén, FSA, MAAALeon F. (Rocky) Joyner, Jr., ASA, MAAA

The Segal CompanyThe Segal Company

2/24/2005 2/24/2005

Date Date

130492/05392.003

04 RS BR 1248

02/24/2005

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