Loading...
HomeMy WebLinkAboutKentucky Public Pensions Authority - Public Financial Report2021For the Fiscal Year Ended June 30, Summary Annual Financial Report A component unit of the Commonwealth of Kentucky County Employees Retirement System Kentucky Employees Retirement System State Police Retirement System EXECUTIVE DIRECTOR’S MESSAGE Funded Status Pension Fund 6/30/2021 6/30/2020 CERS Nonhazardous 51.8%49.4% CERS Hazardous 46.7%45.1% KERS Nonhazardous 16.8%14.2% KERS Hazardous 60.4%55.3% SPRS 30.7%28.1% It marked the highest single-year investment return in the history of the organization, surpassing the 24% return recorded in 1997. Because the actuarially accrued contribution is no longer tied to the fluctuating size of the employer’s payroll, KERS Nonhazardous will receive the contribution required to reduce its unfunded liability regardless of employer reductions in covered payroll. December 8, 2021 On behalf of the Kentucky Public Pensions Authority and the Boards of the County Employees Retirement System and the Kentucky Retirement Systems, it is my honor to present the Summary Annual Financial Report for the Fiscal Year (FY) ended June 30, 2021. This report, and the Annual Comprehensive Financial Report, are provided as a resource for understanding the structure and financial status of KPPA and the Systems it operates. From record investment returns to the finalization of the CERS separation, from the passage of fixed allocation funding legislation for KERS Nonhazardous employers to learning to perform effectively in a work-from-home environment, FY 2021 saw more than its share of challenges and positive developments. Here are a few highlights: Record Investment ReturnsPension and insurance funds administered by KPPA collectively earned an investment return of 25% net of fees for the Fiscal Year ended June 30. Those returns were a major contributor to the $4.5 billion increase in assets across the 10 pension and insurance funds. KPPA closed FY 2021 with $22.9 billion in assets, based on market value, compared to $18.4 billion on June 30, 2020. The overall performance last year compared favorably with the long-term rates of return for the pension and insurance funds. Overall performance continues to exceed the actuarial assumed rates of return, which are 5.25% for the KERS Nonhazardous and State Police pension funds and 6.25% for all other pension and insurance funds. Detailed information about investments can be found in the investments section of this report. For comprehensive information about our investments, including Investment Policy Statements, visit our website, kyret.ky.gov, and go to the Investments Library section under the Investments tab at the top of the page. ActuarialThe actuarial value of the CERS Hazardous and Nonhazardous, KERS Hazardous and Nonhazardous, and State Police pension liabilities, and total insurance liability, was determined as of June 30, 2021. Investment performance contributed to improvements in the funded status for all 10 pension and insurance funds. The investment gains in excess of the actuarial assumed rates of return will continue to benefit those funds as the gains are amortized over Fiscal Years 2021-2025. Funding status by fund, actuarial valuation results, and the economic assumptions used to calculate the total pension and insurance liability can be found in the actuarial section of this report and are highlighted for the pension funds in the schedule below. Fixed Allocation FundingHouse Bill 8, sponsored by Rep. Jim DuPlessis, changed the method for calculating KERS Nonhazardous employer contributions from a “percent of payroll” model to a “fixed allocation funding” model. Beginning July 1, 2021 employers began paying the normal cost for all their employees, plus their agency’s actuarially-calculated percentage of the unfunded liability specifically attributable to that employer’s current and former employees who participate in KERS Nonhazardous. CERS SeparationDuring the past fiscal year, we substantially completed the separation of the CERS system from the KERS and SPRS systems, as mandated and outlined in House Bill 484 (2020) and House Bill 9 (2021), sponsored by Rep. Russell Webber. Together, the two bills made significant changes to the governance and administrative structure of the former Kentucky Retirement Systems. House Bill 484 transferred governance of CERS to a separate 9-member board of trustees, while another 9-member board of trustees now governs KERS and SPRS under the name Kentucky Retirement Systems. The entity comprising benefits, legal, administration, and investment staff that had been known as Kentucky Retirement Systems is now known as the Kentucky Public Pensions Authority (KPPA). It is governed by a third 8-member board composed of 4 CERS and 4 KRS trustees. House Bill 9, essentially the blueprint for implementing HB 484, created separate statutes governing CERS and KRS and amended current statutes to allow CERS and KRS to use the existing registration of assets in order to avoid additional expenses. 2 David L. EagerExecutive Director The necessity of working remotely during the pandemic opened a new avenue of service to our members. Our actuary, GRS, projects that our pension and insurance funds will be fully funded by 2049, provided KPPA receives the full Actuarially Determined Employer Contribution each year and all actuarial assumptions are met. EXECUTIVE DIRECTOR’S MESSAGE Staff logged thousands of hours on a multitude of individual tasks to implement the required changes. For instance, to implement changes required in Line of Business and Self Service, the Enterprise and Technology Services staff completed over 700 work items to update forms, reports, and letters as well as language changes on screens to update the agency name to KPPA, which included updating and replacing all the logos and images. This also took a huge effort in testing, which involved staff in Enterprise and Technology Services (IT), Employer Reporting Compliance and Education, Quality Assurance, Communications, Payroll, and Health Insurance. Communications updated logos and branding, kept stakeholders in the loop and made hundreds of changes to the website, not all of which are complete. Procurement and Legal re-established more than 150 vendor contracts with corresponding confidentiality agreements, Business Associate Agreements and Delivery Order/Proofs of Necessity. The list goes on. Working from HomeFiscal Year 2021 saw the depths of the COVID crisis during the winter of 2020-21, the green shoots of recovery with the availability of vaccines in the spring of 2021, and then the re-emergence of COVID through the Delta variant in the summer. Through it all the safety of our members and staff remained paramount, and KPPA employees continued to successfully serve members and retirees, while mostly working from home. Typically only between 10% and 20% of the staff reported to the Frankfort campus to perform duties that could not be done remotely. Now, rather than traveling to Frankfort to meet with a retirement counselor, or relying solely on Self Service, members can meet with counselors face-to-face via online video. What we initially thought of as an inconvenience has been well-received by members. As a result, virtual and phone appointments continue to be the members' primary options elected for counseling services. KPPA continues to add new features to Self Service, and it remains the best option for members to quickly and easily access their account information and benefit estimates, file for retirement, and submit documents to our office. Board members also adapted to the new COVID realities, pivoting from in-person meetings to fully online videoconferences. Additionally, board members quickly worked out their organizational structures and set up the necessary committees to implement the CERS separation from KERS and SPRS and to operate under that new structure. Cyber SecurityKPPA’s members and employers entrust us with sensitive data that must be protected. As cyber security threats increase and become more sophisticated, and our work environment changes, we are committed to meeting the challenge of keeping that information secure. Our Enterprise and Technology Services staff continue to monitor threats from social engineering schemes like spear phishing and to require quarterly education campaigns designed to highlight those threats and instruct our staff on how to avoid them. Over the past year, the biggest security concern has shifted from the office network perimeter to the home networks of employees working remotely. Any security system is only as strong as its weakest link. A concerted effort has been made to educate employees on the importance of making sure their home systems are secure and about potential third-party attempts to acquire member and other KPPA confidential information. Looking AheadOur most important job is to meet our obligations to our Members and serve them responsibly. That means working with the Legislature and the Governor’s Office to ensure the systems operated by KPPA get the required funding, and being good stewards of the retirement and insurance funds entrusted to us. It means prudently investing assets to generate the best risk-adjusted returns possible. It means being as transparent as we can via our website, social media, and email. And it means being responsive to our members’ questions and concerns. And those same projections show that benefits will be secure going forward thanks to steps taken over the past eight years, including the passage of legislation and adoption of internal policies designed to put the plans operated by KPPA on solid financial footing. AcknowledgmentsThe preparation of this report has been a collaborative effort of KPPA Executive Management and the Accounting, Investments, and Communications Divisions. The contents have been reviewed by the Internal Audit Division. KPPA takes responsibility for all the information in the report and confidently presents it as a basis for making management decisions that promote the responsible stewardship of the assets of the systems operated by KPPA. 3 The funds operated by KPPA are governed by two 9-member boards of trustees, each consisting of three elected members and six gubernatorial appointees serving four-year terms. Effective April 1, 2021, the CERS Board of Trustees is responsible for governance of the CERS plans. The governance of the KERS plans and the SPRS plans are the responsibility of the KRS Board of Trustees. CERS and the new KRS each have a Chief Executive Officer (CEO) who serves as a legislative and executive advisor to the respective boards and a General Counsel who provides legal services. Ed Owens IIICERS Chief Executive Officer J.T. Fulkerson Term ends July 1, 2021 Nominated by KLC Jerry Wayne PowellVice Chair Term ends March 31, 2025 Betty PendergrassChair Term ends March 31, 2025 Dr. Patricia P. Carver Term ends March 31, 2025 CERS BOARD OF TRUSTEESThree (3) Elected Trustees; Six (6) Appointed by Governor George Cheatham Term ends March 31, 2025 Nominated by KSBA J. Michael Foster Term ends July 1, 2021 Nominated by KACo Dr. Merl Hackbart Term ends March 31, 2025 Nominated by KACo Dr. Martin Milkman Term ends July 1, 2025 Nominated by KSBA William O’Mara Term ends March 31, 2025 Nominated by KLC ELECTED BY MEMBERSHIP APPOINTED BY GOVERNOR: The Governor selects appointees from lists of candidates provided by the Kentucky Association of Counties (KACo), the Kentucky League of Cities (KLC), and the Kentucky School Boards Association (KSBA). John E. Chilton KRS Chief Executive Officer Joseph L. Grossman Term ends June 17, 2022 Campbell Connell Term ends March 31, 2022 Elected by KERS Keith Peercy Chair Term ends March 31, 2023 Elected by SPRS Larry Totten Term ends March 31, 2022 Appointed by KRS Trustees to fill vacancy KRS BOARD OF TRUSTEES Three (3) Elected Trustees; Six (6) Appointed by Governor John Cheshire lll Vice Chair Term ends Dec. 1, 2023 Pamela F. Thompson Term ends June 17, 2023 Ellen Lynn Hampton Term ends June 17, 2022 C. Prewitt Lane Term ends June 17, 2023 Bruce Brown Term ends June 17, 2022 ELECTED BY MEMBERSHIP APPOINTED BY GOVERNOR GOVERNANCE 4 During the 2020 Legislative Session, House Bill 484 was passed establishing a new governance structure for the agency that operates the Systems. Effective April 1, 2021, KRS as an Agency of the Commonwealth is now known as the Kentucky Public Pensions Authority (KPPA). Current KRS employees became KPPA employees and have continued to provide administrative support, investment management, and conduct daily activities for the new CERS, KRS, and KPPA Boards. KPPA is led by an Executive Director who works with the Chief Executive Officers of the CERS and KRS Boards to carry out the statutory provisions of the Systems. CAMPBELL CONNELL KRS TRUSTEE Selected by KRS Chair KEITH PEERCY KPPA CHAIR KRS Board Chair JOHN CHESHIRE III KRS TRUSTEESelected by KRS Chair C. PREWITT LANEKRS TRUSTEEInvestment Committee Chair BETTY PENDERGRASSKPPA VICE CHAIRCERS Board Chair JERRY W. POWELL CERS TRUSTEESelected by CERS Chair DR. MERL HACKBARTCERS TRUSTEEInvestment Committee Chair WILLIAM O’MARA CERS TRUSTEESelected by CERS Chair KPPA BOARDFour (4) CERS and Four (4) KRS Board Representatives Executive Director Office of Benefits ERIN SURRATT Division Director Disability & Survivor Benefits LIZA WELCH Division Director Member ServicesSHAUNA MILLER Division Director Membership SupportKEVIN GAINES Division Director Retiree ServicesSTEPHANIE ALDRIDGE Division Director Retiree Health CareCONNIE PETTYJOHN Division Director Quality AssuranceWES CROSTHWAITE Executive Director Office of Legal Services MICHAEL BOARD Division Director Human ResourcesMARLANE ROBINSON Division Director Communications SHAWN SPARKS JOINT CERS-KRS AUDIT COMMITTEE CERS & KRS INVESTMENT COMMITTEES Division Director Enterprise and Technology Services DOMINIQUE MCKINLEY Division Director Employer Reporting, Compliance & EducationD’JUAN SURRATT Division Director AccountingCONNIE DAVIS Assistant Director Procurement & Office ServicesANNE BAKER EXECUTIVE DIRECTORDAVID EAGER CONSULTANTSActuarial ServicesGabriel, Roeder, Smith & Co. Legal ServicesStoll Keenon Ogden, PLLCReinhart Boerner Van Deuren, SCFrost Brown Todd, LLCFaegre Drinker Biddle & Reath, LLPManatt, Phelps & Phillips, LLPHirschler Fleischer, P.C.Ice Miller, LLPUmberg Zipser, LLP Auditing ServicesBlue & Co., LLC Fiduciary Review CounselIce Miller, LLP Investment ConsultantWilshire Master CustodianBNY Mellon Division DirectorInternal Audit KRISTEN COFFEY Executive Director Office of Operations REBECCA ADKINS Staff Attorney Supervisor AdvocacyLEIGH ANN DAVIS Staff Attorney Supervisor Non-AdvocacyCARRIE BASS Staff Attorney Supervisor Non-AdvocacyVICTORIA HALE Agency structure as of December 2021 Deputy Executive Director Office of InvestmentsSTEVE WILLER Division Director Private Equity & Alternative AssetsANTHONY CHIU Division Director Public EquityJOE GILBERT IV Division Director Real Return & Real EstateVACANT AGENCY STRUCTURE 5 Executive Director Office of Investments STEVEN HERBERT 6 Participation Date9/1/2008 - 12/31/2013TI E R TI E R Participation Date 1/1/2014 and afterTI E R3TI E R Participation Date Prior to 9/1/2008TI E R HEALTH INSURANCE KPPA pays a percentage of the monthly contribution rate or a dollar amount toward insurance coverage. The contribution amount is based on the retired member’s participation date, years of service, and type of service. A percentage of the monthly contribution rate is paid for members participating prior to July 1, 2003. A dollar amount is paid toward insurance coverage for members participating on or after July 1, 2003. BENEFIT TIERS Each plan provides pension and insurance benefits based on the member’s participation date. 25 % 50 % 75 % 10 0 % 67.2% 23.4% 7.1% $20,000 or less $20,001 -$40,000 $40,001 -$60,000 $60,001 -$80,000 Over$80,000 0.5%1.8% RETIREE ANNUAL BENEFIT RECEIVED TOTALMEMBERS401,043 1 2 3 , 8 0 9 155,506 121,72 8 KPPA operates three systems. CERS and KERS are multiple-employer, cost-sharing defined benefit pension plans with nonhazardous and hazardous members. SPRS is a single-employer defined benefit pension plan with hazardous members. Each system covers regular full-time members employed by the participating agencies. SYSTEMS AND BENEFIT TIERS Our Systems ANNUAL BENEFIT 97% of CERS, KERS, and SPRS retirees receive $60,000 per year or less in pension benefits. Most - 93% - of that, $2.1 billion, was paid to Kentucky residents (see page 12), meaning most of the pension benefits KPPA pays out each year stay in Kentucky and benefit local economies. CERS participating employers include local governments (county and city), school boards, and eligible local agencies. Nonhazardous and hazardous combined cover 260,821 members. KERS participating employers include state departments, boards, employers directed by Executive Order of the Governor to participate in KERS, and 112 quasi-governmental agencies. Nonhazardous and hazardous cover 137,518 members. SPRS covers all 2,704 retired, active, and inactive Kentucky State Police troopers. All SPRS positions are considered to be hazardous. 7 252,473 50,422 98,148 Tier 1 Tier 2 Tier 3 Active Inactive Retired Active Inactive Retired Active Inactive Retired 47,528 84,556 120,389 20,760 28,382 1,280 55,521 42,568 59 CERS Nonhazardous CERS Hazardous KERS Nonhazardous KERS Hazardous SPRS ACTIVE AVERAGE AGE 48.0 38.4 46.0 40.1 37.7 AVERAGE ANNUAL SALARY $32,685 $63,050 $44,701 $42,549 $58,501 INACTIVE NON-VESTED AVG. CONTRIBUTIONS/INTEREST $1,343 $3,850 $1,999 $1,964 $1,430 VESTED AVG. ANNUAL DEFERRED BENEFIT $1,631 $4,732 $2,796 $2,127 $3,623 RETIRED AVERAGE AGE 70.9 62.4 70.0 65.4 63.5 AVERAGE ANNUAL BENEFIT PAYMENT $12,017 $28,781 $21,328 $15,793 $39,833 Tier 3 Retired Tier 3 Inactive Tier 3 Active Tier 2 Retired Tier 2 Inactive Tier 2 Active Tier 1 Retired Tier 1 Inactive Tier 1 Active SPRSKERS-HKERS-NHCERS-HCERS-NH 28,381 49,898 62,586 12,873 17,713 39,124 28,071 3,552 1,431 8,787 1,800 608 3,786 1,204 14,103 31,240 44,184 5,234 8,715 10,372 9,724 1,122 1,807 3,294 670 1,278 2,017 3,428 370 180 1,538 183 68 222 141 239,626 37 21,195 123,857 13,661 2,704 4 23 271 14 3 42 1 1 943 MEMBERSHIP OVERVIEW 8 CERS EMPLOYERS Classification Agencies Employees Airport Boards 5 491 Ambulance Services 18 438 Area Development Districts 14 661 Boards of Education 171 45,629 Cities 221 10,167 Community Action 21 2,908 Conservation Districts 49 63 County Attorneys 78 563 County Clerks 16 566 Development Authorities 6 7 Fire Departments 31 1,049 Fiscal Courts 118 10,788 Health Departments 1 321 Housing Authorities 39 401 Jailers 2 67 Libraries 85 1,213 Other Retirement Systems 2 3 P1 State Agencies 3 1,491 Parks and Recreation 6 62 Planning Commissions 16 201 Police Departments 2 14 Riverport Authorities 5 65 Sanitation Districts 9 332 Sheriff Departments 12 708 Special Districts & Boards 47 1,332 Tourist Commissions 24 160 Urban Government 2 6,171 Utility Boards 119 4,057 Total 1,122 89,928 KERS Classification Agencies Employees County Attorneys 57 280 Health Departments 60 1,951 Master Commissioner 31 60 Non-P1 State Agencies 34 588 Other Retirement Systems 1 22 P1 State Agencies 129 27,872 Regional Mental Health Units 10 1,623 Universities 7 1,736 Total 329 34,132 SPRS Kentucky State Police 1 775 EMPLOYER REPORTINGKPPA staff works with 1,452 employers entrusted with the responsibility of reporting all employees on a monthly basis. PARTICIPATING EMPLOYERS CERS EMPLOYMENT 90,000 100,000 2021202020192018201720162015201420132012FY PARTICIPATING EMPLOYERS 1,122 Tier 1 32,295 Tier 2 14,677 Tier 3 42,956 Total 89,928 PARTICIPATING EMPLOYERS 329 KERS EMPLOYMENT 40,000 50,000 2021202020192018201720162015201420132012FY Tier 1 15,610 Tier 2 5,988 Tier 3 12,534 Total 34,132 PARTICIPATING EMPLOYERS 1 SPRS EMPLOYMENT 850 1,000 2021202020192018201720162015201420132012FY Tier 1 368 Tier 2 185 Tier 3 222 Total 775 GRS Actuarial Valuation Results as of June 30, 2021 CERS Nonhazardous CERS Hazardous KERS Nonhazardous KERS Hazardous SPRS NORMAL COST RATES1 - PENSION (Each employer’s cost for an employee’s retirement benefit) Tier 1 Cost Before 7/03 7.89%13.78%8.78%11.95%22.85% Tier 1 Cost After 7/03 7.46%13.57%9.11%11.85%22.40% Tier 2 Cost 4.74%10.74%6.38%8.23%18.81% Tier 3 Cost 3.04%5.79%3.53%5.16%7.28% Average Normal Cost2 6.30%10.71%7.82%8.78%18.60% NORMAL COST RATES1 - INSURANCE (Each employer’s cost for an employee’s insurance benefit) Tier 1 Cost Before 7/03 5.04%11.42%4.06%12.36%15.50% Tier 1 Cost After 7/03 3.19%3.58%2.29%4.46%4.64% Tier 2 Cost 1.12%1.81%0.56%2.03%2.87% Tier 3 Cost 1.02%1.96%0.40%1.71%2.68% Average Normal Cost2 2.56%4.37%2.15%3.87%7.09% Total Pension & Insurance 8.86%15.08%9.97%12.65%25.69% UNFUNDED LIABILITY COST % (Each employer’s cost for the unfunded liability) Pension 17.10%32.10%*23.04%107.80% Insurance 0.83%2.41%*-7.59%7.02% Total Unfunded Liability Cost 17.93%34.51%*15.45%114.82% 1 Normal Cost Rate is the cost of an employee’s retirement benefit to the employer net of employee contributions. 2 Average Normal Cost Rate is the blended normal cost rate of all members active as of the valuation date and includes administrative expenses.*Per House Bill 8 (2021 Regular Session), amortization cost for KERS Nonhazardous employers is allocated based on their 2019 Actuarial Accrued Liability. Amortization cost for the Hazardous fund is included in the contribution rate, payable as a percentage of payroll. 9 EMPLOYER COSTS BY TIER COST COMPONENTSEmployer contributions have two components. The normal cost covers the benefit accruals active participants are projected to earn during the upcoming year toward their retirement and insurance benefits. The second component is the unfunded liability. The unfunded liability cost represents the benefit accruals a member has already earned that were not fully funded as of June 30, 2021. UNFUNDED LIABILITY Unfunded liabilities are debt obligations that do not have sufficient funds set aside to pay the debt. They result primarily from four factors:1. A shortfall between the Actuarially Determined Contribution (ADC) and the actual contribution. 2. Underlying economic assumptions that did not accurately reflect plan experience. Refer to page 21 for more information.3. Investment returns that fell short of the assumed investment rate of return. 4. Benefit increases that were not pre-funded, such as previous retiree Cost of Living Adjustments. 10 1. EMPLOYER CONTRIBUTIONS Recommended employer contribution rates are determined by KPPA’s independent actuary based on data in the annual actuarial valuation. The CERS and KRS Boards adopt employer contribution rates necessary for the actuarial soundness of the Systems as required by Kentucky Revised Statutes 61.565, 61.702, 78.635, and 78.5536. KERS and SPRS employer rates are subject to approval by the Kentucky General Assembly through the adoption of the biennial Executive Branch Budget. The CERS Board sets CERS employer contribution rates, unless altered by legislation enacted by the Kentucky General Assembly. Benefits are funded from three sources: The CERS and KRS Boards are charged with the responsibility of investing assets to provide for member benefits. To achieve that goal, the Boards follow a policy of thoughtfully growing our asset base while protecting against undue risk and losses in any particular investment area. The Boards recognize their fiduciary duty to not only invest the funds in compliance with the Prudent Person Rule, but also to manage the funds in continued recognition of the basic long-term nature of the plans. In carrying out their fiduciary duties, the Trustees have set forth clearly defined investment policies, objectives, and strategies. KPPA maintains all plan assets for CERS, KERS, and SPRS through separate financial accounts and does not commingle assets between the plans. Plan assets are reported individually in audited financial statements. 3. INVESTMENTS Members contribute a percent of their creditable compensation as set by state law based on their benefit tier. 2. EMPLOYEE CONTRIBUTIONS Member Contribution Rates Nonhazardous 5%5%+1% Insurance*5%+1% Insurance* Hazardous 8%8%+1% Insurance*8%+1% Insurance* *One percent (1%) is deposited to the Insurance Plan. TI E R TI E R TI E R3TI E R TI E R HOW BENEFITS ARE FUNDED Administrative expenses are allocated and paid during the fiscal year based on each plan’s membership. KPPA’s administrative expenses can be found on page 15. Find Policies, Performance Reports, and more on our website at KYRET.KY.GOV Employer contributions are deposited to the Retirement Allowance Account and the Insurance Fund and are used to pay monthly benefits and to fund KPPA expenses. Employee contributions are deposited to individual member accounts. When an employee retires, his or her account balance is transferred to the Retirement Allowance Account (the account from which monthly benefits are paid). 11 30 YEAR FUNDING PROJECTIONSBased on current assumptions, the pension and insurance funds will be fully funded (100%) by Fiscal Year 2049. All projections shown below are based on the June 30, 2021 Actuarial Valuation. FUNDING TRENDS Funded Ratio Unfunded Liability - Pension Unfunded Liability - Insurance 30 YEAR FUNDING PROJECTION ($ in Millions) $-3,000 $1,500 $6,000 $10,500 $15,000 0% 50% 100% 150% $1,000 $2,000 $3,000 $4,000 20% 60% 100% 2000 2010 2020 2030 2040 2050 Kentucky Employees Retirement System 30 YEAR FUNDING PROJECTION ($ in Millions) $-100 $75 $250 $425 $600 30% 60% 150% $-250 $-160 $-70 $20 $110 $200 30% 60% 150% 2000 2010 2020 2030 2040 2050 100% 100% Kentucky Employees Retirement System 30 YEAR FUNDING PROJECTION ($ in Millions) $800 $1,600 $2,400 $3,200 $4,000 0% 40% 100% 2000 2010 2020 2030 2040 2050 100% $-2,000 $500 $3,000 $5,500 $8,000 0% 40% 160% 30 YEAR FUNDING PROJECTION ($ in Millions) $-500 $200 $900 $1,600 $2,300 $3,000 30% 60% 150% $200 $400 $600 $800 $1,000 20% 60% 100% 2000 2010 2020 2030 2040 2050 100% 30 YEAR FUNDING PROJECTION ($ in Millions) $-200 $50 $300 $550 $800 0% 30% 60% 150% $70 $140 $210 $280 $350 20% 40% 60% 80% 100% 2000 2010 2020 2030 2040 2050 100% FULLY FUNDED BY 2049The Systems’ actuary, GRS, projects that the pension and insurance funds will be fully funded by 2049, based on the most recent actuarial valuation and the closed amortization period set in statute, provided KPPA receives the full Actuarially Determined Employer Contribution each year and all actuarial assumptions are met. Those same projections show that benefits will be secure going forward due to steps taken over the past eight years, including the passage of legislation and adoption of internal policies designed to put the plans administered by KPPA on solid financial footing. Less than $5M $5.00M to $19.99M $20.00M to $79.99M More than $80M MONTHLY INSURANCE PAYMENTS KPPA pays a percentage of the monthly contribution rate or a dollar amount toward insurance coverage for eligible members. Any portion paid toward eligible dependent coverage is based on the member’s hazardous service credit. ONE-TIME PAYMENTS Number Amount 7,345 $51.94 Million INSURANCE PAYMENTS Number of Plans Amount 87,000 $442.96 Million KENTUCKY RECIPIENTS Number Amount 112,642 $2,097 Million MONTHLY PENSION PAYMENTS KPPA paid more than $2 billion in monthly pension payments to Kentucky residents. ONE-TIME PAYMENTS KPPA issues two types of one-time payments to eligible members and beneficiaries: refunds and a $5,000 death benefit payment. Pension benefits have a wide-ranging impact on the state’s economic health. In addition to ongoing monthly pension payments, KPPA issued refunds, death benefit payments, and paid toward insurance coverage for eligible retirees, beneficiaries, and their dependents during the Fiscal Year. ECONOMIC IMPACT FOR KENTUCKY ECONOMIC IMPACT KPPA’s pension payments support state economic activity, with 93% paid to in-state residents. Each $1 in taxpayer contributions to Kentucky’s state and local pension plans supported $4.57 in total output in the state. Each $1 in state and local pension benefits paid to Kentucky residents ultimately supported $1.35 in total output in the state. Payments per county range from $1 M to $362 M $362 M $1 M Paid to KY residents * Source: National Institute on Retirement Security, “Pensionomics 2021: Measuring the Economic Impact of DB Pension Expenditures” (nirsonline.org). For Kentucky figures, see State Fact Sheets; for methodology, see the Technical Appendix in the full report.12 $1.00 $1.35 Pension Benefit Multiplier* In Fiscal Year 2021, KPPA paid over $2 billion in ongoing pension benefit payments. Payments per county in the Commonwealth of Kentucky range from $1.1 million to $362 million annually providing a consistent revenue stream for all local economies. ECONOMIC IMPACT FOR KENTUCKY Fiscal Year 2021 Monthly Pension Benefits Paid by County ($ In Millions) County Payees Total County Payees Total County Payees Total County Payees Total Adair 518 $8.64 Edmonson 241 $3.39 Knox 617 $9.72 Nicholas 217 $2.95 Allen 408 5.58 Elliott 186 2.82 Larue 378 5.86 Ohio 648 7.13 Anderson 1,407 35.25 Estill 419 5.91 Laurel 1,302 21.54 Oldham 1,374 28.58 Ballard 252 3.59 Fayette 5,567 120.83 Lawrence 340 4.14 Owen 521 12.23 Barren 1,121 16.89 Fleming 489 8.14 Lee 231 3.33 Owsley 214 3.14 Bath 409 6.28 Floyd 919 14.37 Leslie 276 4.11 Pendleton 371 6.23 Bell 671 10.76 Franklin 6,313 196.22 Letcher 631 8.71 Perry 796 11.50 Boone 1,909 40.11 Fulton 181 2.17 Lewis 341 4.40 Pike 1,287 19.18 Bourbon 541 9.49 Gallatin 125 2.08 Lincoln 682 8.65 Powell 345 4.75 Boyd 1,077 17.69 Garrard 439 6.49 Livingston 274 4.64 Pulaski 2,293 38.78 Boyle 904 15.77 Grant 637 12.05 Logan 637 9.11 Robertson 74 1.14 Bracken 234 3.21 Graves 924 14.53 Lyon 357 7.14 Rockcastle 401 5.61 Breathitt 523 7.96 Grayson 793 12.57 Madison 2,481 41.8 Rowan 893 15.36 Breckinridge 490 7.30 Green 323 4.56 Magoffin 369 5.17 Russell 566 8.63 Bullitt 1,629 30.14 Greenup 683 9.18 Marion 572 8.08 Scott 1,307 27.60 Butler 322 4.45 Hancock 227 3.04 Marshall 954 13.99 Shelby 1,687 42.17 Caldwell 545 8.22 Hardin 2,296 37.73 Martin 282 3.19 Simpson 296 3.60 Calloway 1,090 15.62 Harlan 648 9.70 Mason 413 6.77 Spencer 527 12.04 Campbell 1,587 30.07 Harrison 474 7.39 McCracken 1,620 29.54 Taylor 669 9.78 Carlisle 121 1.76 Hart 349 5.45 McCreary 396 4.12 Todd 262 3.56 Carroll 318 5.23 Henderson 1,101 18.04 Mclean 316 4.58 Trigg 538 8.73 Carter 813 10.83 Henry 911 20.49 Meade 468 6.85 Trimble 286 4.57 Casey 373 4.75 Hickman 94 1.65 Menifee 211 3.10 Union 372 4.21 Christian 1,561 27.26 Hopkins 1,299 19.77 Mercer 783 14.09 Warren 2,904 50.97 Clark 867 15.08 Jackson 333 4.52 Metcalfe 312 4.09 Washington 355 5.49 Clay 584 8.75 Jefferson 16,537 361.64 Monroe 275 3.13 Wayne 562 7.72 Clinton 285 3.65 Jessamine 1,157 19.86 Montgomery 668 10.99 Webster 372 4.86 Crittenden 222 3.02 Johnson 623 9.27 Morgan 645 11.13 Whitley 1,129 16.23 Cumberland 187 2.87 Kenton 2,356 49.29 Muhlenberg 816 10.61 Wolfe 336 5.55 Daviess 2,722 $48.74 Knott 465 $7.35 Nelson 1,102 $18.9 Woodford 1,066 $26.79 This table represents all payees receiving a monthly payment during the Fiscal Year. Members receiving payments from multiple accounts are represented as one payee. Payees %Amount Kentucky 112,642 93.2%$2,097 Out of State 9,050 6.8%152 Grand Total 121,692 100.00%$2,249 13 14 0 $10 $5 $15 $20 (in billions) $13.8 $16.7 $17.6$16.0$14.7 $15.9 $15.1 $18.4 FIDUCIARY NET POSITION IN BILLIONS(Pension + Insurance) $18.4 2017 201820122013201420152016 2019 2020 2021 $22.9 PENSIONTotal Pension assets (CERS, KERS, and SPRS) INCREASED 23.79% in FY 2021— Rose from $12.86 billion at the beginning of the Fiscal Year to $15.92 billion as of June 30, 2021.— This $3.06 billion increase was due in large part to the increase in the fair value of investments. INSURANCEThe combined assets of the five Insurance funds (CERS Nonhazardous, CERS Hazardous, KERS Nonhazardous, KERS Hazardous, and SPRS) INCREASED $1.45 billion in FY 2021.— The funds received $1.83 billion in total contributions and net investment income, which offset $383.4 million in deductions during the Fiscal Year.— Total assets rose from $5.52 billion at the beginning of the Fiscal Year to $6.97 billion as of June 30, 2021. INVESTMENTSFiscal Year 2021 investment performance was a record high while at the same time outperforming the benchmarks. — The Pension funds earned a combined net return of 25.00% versus the 24.07% benchmark. — All Pension funds exceeded their assumed rates of return:• 6.25% for CERS, CERS Hazardous, and KERS Hazardous; and • 5.25% for KERS Nonhazardous and SPRS.— The Insurance Plan earned a combined net return of 24.95%, versus the 23.84% benchmark. • Investment performance also exceeded the assumed rate of return of 6.25% used for all funds in the Insurance Plan. CASH FLOWSCERS Pension: Cash flows remain slightly negative due to the continued phase-in of employer contribution rates. KERS and SPRS Pension: Cash flows for both plans continued to improve during Fiscal Year 2021 due to employer contributions and investment income.— FY 2021 Employer contribution rates increased for the KERS Nonhazardous and Hazardous funds.— KERS Nonhazardous Quasi agencies once again had a rate of 49.47%, which reduced the cash flow that would have been received if the rates were the same as the other KERS employers. Insurance: Cash flows for CERS Nonhazardous, CERS Hazardous, and KERS Nonhazardous funds continued to stabilize over the year with increased employer contributions.— KERS Hazardous did not receive increased contributions, as it continues to be overfunded.— SPRS experienced a slight decline in employer contributions. The plans’ funded status have also been positively impacted by stable expenses and by a benefit formula change that began in 2003. FINANCIAL REPORT 2021 Financial HighlightsFiscal Year 2021 Fiduciary Net Position for the CERS, KERS, SPRS and Insurance Plan increased 24.52%, primarily attributable to the favorable market value of investments, with assets increasing from $18.39 billion to $22.90 billion. This is an overview of the financial activities for the Fiscal Year ended June 30, 2021. For more detailed information, refer to the Financial Section of the 2021 Annual Comprehensive Financial Report. 15 Table 1. Fiduciary Net Position ($ in Millions) Pension Funds Insurance Fund Total Assets 2021 2020 2021 2020 2021 2020 Cash & Investments $16,391 $13,150 $7,184 $5,688 $23,575 $18,838 Receivables 361 296 122 87 483 383 Equip/Int. Assets, net of dep/amort.1 2 --1 2 Total Assets 16,753 13,448 7,306 5,775 24,059 19,223 Total Liabilities (831)(587)(333)(250)(1,164)(837) Fiduciary Net Position $15,922 $12,861 $6,973 $5,525 $22,895 $18,386 Table 1 - Assets and LiabilitiesThis table shows the assets and liabilities for the years ending June 30, 2021, and June 30, 2020. Total liabilities are comprised of securities lending collateral, investment accounts payable (buys) and outstanding employer/member invoices. The Fiduciary Net Position represents the funds KPPA has accumulated thus far to pay pension benefits for retirees, active and inactive members, and health care premiums for current and future retirees. Table 2. Changes in Fiduciary Net Position ($ in Millions) Pension Funds Insurance Fund Total Additions 2021 2020 2021 2020 2021 2020 Member Contributions $343 $353 $24 $23 $367 $376 Employer Contributions 1,724 1,710 346 370 2,070 2,080 Other Contributions 176 1 84 12 260 13 Net Investment Income 3,150 140 1,378 23 4,528 163 Total Additions $5,393 $2,204 $1,832 $428 $7,225 $2,632 Deductions Benefit payments $2,263 $2,206 $-$-$2,263 $2,206 Refunds 32 33 --32 33 Admin/Cap. Proj.37 38 2 2 39 40 Healthcare Costs --381 382 381 382 Total Deductions 2,332 2,277 383 384 2,715 2,661 Total Change in Fiduciary Net Position $3,061 $(73)$1,449 $44 $4,510 $(29) CERS Nonhazardous 1,560 (132)643 12 2,203 (120) CERS Hazardous 539 (34)303 (20)842 (54) KERS Nonhazardous 723 76 347 64 1,070 140 KERS Hazardous 177 9 110 (12)287 (3) SPRS 62 8 46 0 108 8 Table 2 - Income and ExpensesThis table shows the annual additions (income) and deductions (expenses) for the plans. Investment earnings and contributions typically make up the majority of the income. Investment returns were positive in 2021 and 2020 for the Pension and Insurance Plans. The deductions largely represent pension benefits, health insurance expenses, administrative costs, and refunds of contributions to inactive members. Investment Income (Loss) for Insurance Fund ($ in Millions) Asset 2021 2020 Increase (Decrease) in fair value of investments $1,044 $(309) Investment income net of investment expense 91 105 Gain on sale of investments 242 227 Net Investment Income $1,377 $23 Investment Income (Loss) for Pension Funds ($ in Millions) Asset 2021 2020 Increase (Decrease) in fair value of investments $2,335 $(688) Investment income net of investment expense 252 238 Gain on sale of investments 563 590 Net Investment Income $3,150 $140 KPPA Administrative Expenses ($ in Millions) KPPA staff = 243 employees 2021 2020 Salaries $14.4 $14.7 Pension & Benefits 14.9 14.6 Contractual Services 1.7 1.9 Communication 0.8 0.7 Rent/Utilities/Misc 1.5 1.4 Technology 2.4 3.2 Healthcare Retiree Fees 2.3 2.4 Depreciation 1.1 1.1 Total $39.1 $40.0 Net Returns - PENSION ($ in Millions) Plan Fair Value($ in Millions)% of TotalFair Value 1 Year (%)3 Years (%)5 Years (%)10 Years (%)Inception (%) KPPA Index KPPA Index KPPA Index KPPA Index KPPA Index CERS Nonhazardous $8,608 54.5 25.7 24.9 10.3 10.0 10.7 10.4 8.0 7.9 9.2 9.3 CERS Hazardous 2,918 18.5 25.6 24.9 10.2 10.0 10.6 10.3 8.0 7.9 9.2 9.3 KERS Nonhazardous 3,041 19.3 22.6 21.0 9.9 9.1 9.8 9.3 7.6 7.5 9.1 9.2 KERS Hazardous 872 5.5 25.2 24.9 10.1 10.0 10.5 10.3 7.9 7.9 9.2 9.3 SPRS 349 2.2 21.7 21.0 9.6 9.1 9.8 9.4 7.4 7.5 9.1 9.2 KPPA*$15,788 100.0 25.0 24.1 10.2 9.7 10.5 10.1 7.9 7.9 9.2 9.3 *The KPPA total is not a weighted average of each plan. Each plan has a different asset allocation which results in different returns compared to the overall pool. PENSION FUNDS RESULTS This is an overview of the investment activities for the Fiscal Year ended June 30, 2021. For more detailed information, refer to the Investments Section of the 2021 Annual Comprehensive Financial Report. Pension ResultsAs of June 30, 2021, the Pension portfolio earned a net return of 25.0%, outperforming the benchmark return of 24.1%. The Pension portfolio outperformed the actuarial assumed rates of return of 5.25% for KERS Nonhazardous and SPRS, and the 6.25% for CERS Nonhazardous, CERS Hazardous, and KERS Hazardous. INVESTMENTS REPORT Net Returns By Allocation - PENSION ($ in Millions) Note: Fair values are adjusted for accruals and expenses Structure Inception Fair Value($ in Millions)% ofTotal 1 Year (%)3 Years (%)5 Years (%)10 Years (%)InceptionTo Date ExternalFEES KPPA Index KPPA Index KPPA Index KPPA Index KPPA Index ($ in Millions) Total Fund 4/1/1984 $15,788 100.0 25.0 24.1 10.2 9.7 10.5 10.1 7.9 7.9 9.2 9.3 $139.5 Total Public Equity 4/1/1984 6,952 44.0 41.3 40.7 14.3 14.1 14.9 14.7 9.9 9.8 10.9 10.7 12.4 U.S. Equity 4/1/1984 3,522 22.3 44.8 44.2 17.8 18.7 17.2 17.9 13.9 14.7 11.9 12.0 2.8 Non-U.S. Equity 1 4/1/2000 3,430 21.7 37.8 37.2 10.9 9.4 12.7 11.3 6.4 5.8 4.3 4.4 9.6 Core Fixed Income 7/1/2013 2,380 15.1 3.4 -0.3 5.3 5.3 3.1 3.0 --3.6 3.4 2.6 Specialty Credit 7/1/2017 2,646 16.8 15.3 13.5 6.7 5.9 ----6.5 5.3 39.8 Opportunistic 7/1/2018 404 2.6 20.6 11.7 9.1 4.4 ----9.1 4.3 4.2 Real Return 7/1/2011 1,033 6.5 24.0 24.0 5.7 5.7 5.3 5.3 4.3 3.5 4.3 3.5 8.3 Private Equity 7/1/2002 1,237 7.8 42.0 42.0 16.7 16.7 15.4 15.4 13.8 17.2 12.0 12.7 58.8 Real Estate 7/1/1984 610 3.9 10.1 1.5 9.6 4.0 10.0 5.3 9.4 8.7 6.4 6.3 9.2 Cash Account2 1/1/1988 $526 3.3 0.1 0.1 1.5 1.3 1.5 1.1 0.9 0.6 3.4 3.0 $4.2 1Equities include trade commissions. 2Cash accounts include custodian, consulting and miscellaneous investment expenses. 16 Net Returns - INSURANCE ($ in Millions) Plan Fair Value ($ in Millions) % of Total Fair Value 1 Year (%)3 Years (%)5 Years (%)10 Years (%)Inception (%) KPPA Index KPPA Index KPPA Index KPPA Index KPPA Index CERS Nonhazardous $3,126 45.1 24.8 23.9 9.8 9.6 10.5 10.2 7.6 7.9 7.7 8.0 CERS Hazardous 1,603 23.1 25.0 23.9 9.9 9.6 10.5 10.2 7.7 7.9 7.7 8.0 KERS Nonhazardous 1,338 19.3 25.2 23.9 9.9 9.6 10.3 10.2 7.4 7.8 7.6 7.9 KERS Hazardous 625 9.0 25.0 23.9 9.8 9.6 10.4 10.2 7.6 7.9 7.7 8.0 SPRS 245 3.5 25.3 23.9 10.1 9.6 10.7 10.2 7.7 7.9 7.7 8.0 KPPA*$6,937 100.0 25.0 23.8 9.9 9.5 10.5 10.1 7.6 7.9 7.7 8.0 *The KPPA total is not a weighted average of each fund. Each fund has a different asset allocation which results in different returns compared to the overall pool. Net Returns By Allocation - INSURANCE ($ in Millions) Note: Fair values are adjusted for accruals and expenses Structure Inception Fair Value($ in Millions)% ofTotal 1 Year (%)3 Years (%)5 Years (%)10 Years (%)InceptionTo Date ExternalFEES KPPA Index KPPA Index KPPA Index KPPA Index KPPA Index ($ in Millions) Total Fund 4/1/1984 $6,937 100.0 25.0 23.8 9.9 9.5 10.5 10.1 7.6 7.9 7.7 8.0 $71.0 Total Public Equity 4/1/1984 3,117 44.9 41.3 40.7 14.2 14.1 14.8 14.6 9.9 9.8 9.3 9.1 5.6 U.S. Equity 4/1/1984 1,582 22.8 44.7 44.2 17.8 18.7 17.2 17.9 14.0 14.7 10.6 10.5 1.3 Non-U.S. Equity 1 4/1/1984 1,535 22.1 37.8 37.2 10.8 9.4 12.7 11.3 6.3 5.8 4.3 3.6 4.3 Core Fixed Income 7/1/2003 866 12.5 3.3 -0.3 5.1 5.3 3.0 3.0 --3.3 3.4 1.0 Specialty Credit 7/1/2017 1,178 17.0 15.0 13.5 6.5 5.9 ----6.2 5.3 17.0 Opportunistic 7/1/2018 206 3.0 20.6 11.7 9.1 4.4 ----9.1 4.3 2.2 Real Return 4/1/1984 436 6.3 22.5 22.5 6.1 6.1 5.3 5.3 4.2 3.6 4.2 3.6 3.3 Private Equity 7/1/1984 585 8.4 34.3 34.3 11.9 11.9 13.4 13.4 13.6 17.2 10.5 12.2 35.8 Real Estate 4/1/2010 257 3.7 10.2 1.5 9.7 4.0 10.1 5.3 9.3 8.7 9.3 5.5 3.9 Cash Account2 7/1/2002 $292 4.2 0.1 0.1 1.3 1.3 1.2 1.1 0.7 0.6 2.5 2.4 $2.2 1Equities include trade commissions. 2Cash accounts include custodian, consulting and miscellaneous investment expenses. PENSION FUNDS RESULTS Insurance ResultsAs of June 30, 2021, the Insurance portfolio earned a net return of 25.0% compared to the benchmark return of 23.9%. The Insurance portfolio achieved rates of return of 10.5% over the five year period and 7.6% over the 10 year period. INVESTMENTS REPORT 17 External Investment Expenses as of June 30, 2021 ($ in Millions) Expense Fees Paid Share of Expenses Portfolio Management Pension Plans $138.0 65.6% Insurance Fund 70.0 33.2% Securities Lending Pension Plans (0.4)(0.2)% Insurance Fund (0.2)(0.1)% Custody Pension Plans 1.5 0.7% Insurance Fund 1.0 0.5% Consultant Pension Plans 0.4 0.2% Insurance Fund 0.2 0.1% Total Expenses $210.5 100% Total Pension Plans $139.5 66.3% Total Insurance Fund $71.0 33.7% Investment Advisors & Assets Under Management ($ in Thousands) Actively Managed Advisor as of 6/30/2021 Assets Under Management American Century Investments $738,238 BlackRock ACWI Ex-US 1,544,242 Franklin Templeton 552,737 Internally Managed Accounts 636,734 JP Morgan Emerging Markets 297,353 Lazard Asset Management 795,495 LSV Asset Management 652,149 Next Century 217,558 Northern Trust Global Inv.515,352 Pzena Emerging Markets 271,163 River Road Asset Management 387,440 Internally Managed S&P 500 3,067,122 Transition Accounts 1,627 Westfield Capital 391,857 Black Diamond Capital Mngt. 57,771 Middle Ground 51,091 Strategic Value Special Fund 84,846 Loomis, Sayles & Company 628,820 Lord Abbett 2,350,942 NISA Investment Advisors 267,068 Adams Street 154,716 Blue Torch 96,714 BSP Private Credit 183,049 Capital Springs 98,416 Cerberus 198,025 Columbia Capital 3,917 H/2 Credit Partners 123,443 Manulife Financial 507,712 Marathon Bluegrass 669,016 Mesa West 126,990 Shenkman Capital 320,653 Waterfall Investment 381,458 White Oak 233,955 BNY Mellon Accruals (1,227) Cash Accounts 819,150 Baring Real Estate 108,550 DivcoWest 4,128 Greenfield Acquisition Partners 18,341 Harrison Street 126,459 Lubert-Adler 73,991 Patron Capital 33,795 Perimeter Park 7,300 Prologis 224,055 Rubenstein Capital 22,343 Actively Managed Advisor as of 6/30/2021 Assets Under Management Stockbridge $142,547 Walton Street 25,682 BTG Pactual 32,322 IFM Infrastructure Debt Fund 67,869 Magnetar Capital 13,737 Nuveen Real Asset 256 Oberland Capital 11,283 Putnam 868,643 Taurus Mine Finance 16,330 Tenaska Power 762 Tortoise Capital 185,662 Arrowmark 609,823 TOTAL $20,019,470 In Redemption Invesco $50 Arcano Capital 23,948 ARES Capital 32,790 Bay Hills Emerging Partners 317,060 Blackstone Capital Partners 65,790 CM Growth Capital Partners 11,327 Columbia Asset Management 728,049 Crestview Partners 86,850 CVC Capital Partners 48,968 DAG Ventures 87,320 DB Secondary Opportunities 53,192 DCM 15,369 Essex Woodland 2,686 Green Equity Investors 143,419 Harvest Partners 70,565 Hellman & Friedman 12,044 H.I.G. Capital 52,714 Horsley Bridge International 159,517 Institutional Venture Partners 989 JW Childs Equity 33 Kayne Anderson 34,224 Keyhaven Capital Partners 35,519 Levine Leichtman 98,911 Matlin Patterson 1,738 Merit Capital Partners 288 MHR Insitituional Advisors 1,911 Mill Road Capital 3,704 New Mountain Partners 70,483 Oak Hill Partners 11,917 Oaktree Capital Management 6 Actively Managed Advisor as of 6/30/2021 Assets Under Management Riverside Capital $28,406 Sun Capital Partners IV 287 Technology Crossover Ven.47 Triton Fund 27,623 VantagePoint Capital Partners 9,580 Vista Equity Partners 104,636 Warburg Pincus 2,046 Wayzata Investment Partners 10,222 Fundamental Partners 81,234 Luxor Capital 1,516 Myriad Opportunities 21,475 Pine River Capital 113 Prisma Capital 137,755 SRS Partners 7,455 Tricadia Select 1,839 AMERRA Capital Management 100,203 TOTAL $2,705,818 GRAND TOTAL $22,725,288 Totals reflect external manager assets under management and differ from Total Fair Values. Real Estate Absolute Return Real Return Opportunistic Public Equity Private Equity Core Fixed Income Specialty Credit Cash / Accruals 18 Fair Values By Fund - Pension as of June 30, 2021 ($ in Millions) CERS Nonhazardous CERS Hazardous KERS Nonhazardous KERS Hazardous SPRS TOTALKPPA Assets Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Cash $145 1.7%$59 2.0%$268 8.8%$32 3.7%$22 6.3%$526 3.3% Core Fixed Income 1,105 12.8%381 13.0%698 23.0%116 13.3%80 22.9%2,380 15.1% U.S. Equity 2,058 23.9%692 23.8%506 16.6%203 23.3%63 18.2%3,522 22.3% Non-U.S. Equity 2,005 23.3%677 23.2%489 16.1%198 22.7%61 17.3%3,430 21.7% Specialty Credit 1,435 16.7%491 16.8%511 16.8%149 17.1%60 17.0%2,646 16.7% Private Equity 711 8.3%239 8.2%202 6.7%66 7.5%19 5.6%1,237 7.8% Opportunistic 231 2.7%76 2.6%68 2.2%21 2.4%8 2.4%404 2.6% Real Return 573 6.6%193 6.6%190 6.2%55 6.3%22 6.4%1,033 6.6% Real Estate 345 4.0%110 3.8%109 3.6%32 3.7%14 3.9%610 3.9% TOTAL PORTFOLIO $8,608 $2,918 $3,041 $872 $349 $15,788 Fair Values By Fund - Insurance as of June 30, 2021 ($ in Millions) CERS Nonhazardous CERS Hazardous KERS Nonhazardous KERS Hazardous SPRS TOTALKPPA Assets Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Fair Value (FV)% of Total FV Cash $129 4.1%$45 2.8%$100 7.5%$11 1.7%$7 2.7%$292 4.2% Core Fixed Income 384 12.3%202 12.6%174 13.0%76 12.2%30 12.2%866 12.5% U.S. Equity 698 22.3%358 22.4%332 24.8%140 22.5%54 22.1%1,582 22.8% Non-U.S. Equity 692 22.1%356 22.2%291 21.7%141 22.4%55 22.4%1,535 22.1% Specialty Credit 536 17.1%265 16.5%222 16.6%114 18.2%41 16.8%1,178 17.0% Private Equity 280 8.9%158 9.8%69 5.1%54 8.7%24 10.0%585 8.4% Opportunistic 93 3.0%51 3.2%33 2.5%21 3.3%8 3.1%206 3.0% Real Return 196 6.3%103 6.4%80 6.0%41 6.6%16 6.4%436 6.3% Real Estate 118 3.9%65 4.1%37 2.8%27 4.4%10 4.3%257 3.7% TOTAL PORTFOLIO $3,126 $1,603 $1,338 $625 $245 $6,937 Schedule of Commissions Paid for the Year Ended June 30, 2021 (in Millions) Assets Total Shares Commissions Paid Price per Share U.S. Equities 38 $0.7 $0.02 Non-U.S. Equities 158 1.0 0.01 Total 196 $1.7 $0.01 19 20 PENSION PLANS The actuarial unfunded liability for the CERS, KERS and SPRS plans was $25.01 billion, a decrease from Fiscal Year 2020. The funded ratio for all funds increased since the prior year. The increase was primarily due to the returns ranging from 21.70% for SPRS to 25.72% for CERS Nonhazardous return on market value. INSURANCE PLANThe Insurance Plan’s unfunded actuarial liability as of June 30, 2021 was $1.96 billion compared to $2.54 billion in the last Fiscal Year. The increase in funded ratios is primarily attributable to the accrued liability being lower than expected due to the 2021 healthcare premium experience and the investment gains during the Fiscal Year ending June 30. This is an overview of the actuarial status for the Fiscal Year ended June 30, 2021. For more detailed information, refer to the Actuarial Section of the 2021 Annual Comprehensive Financial Report. 2.6% 5.1% 51.8%46.7% 2.6% 7.5% 135.5% 6.9%6.1%7.0% 2.4% 16.8% 60.4% 30.7% 85.4% 50.2% 9.5% 82.0% 1.6%50% 25% 75% 100% 125% 150% 84.3% 2021 UNFUNDED LIABILITY = $26.97 Billion $7.18 $3.00 $13.59 $0.51 $0.73 2021 $0.50 $0.28 $1.28 $(0.15)$0.05 2020 UNFUNDED LIABILITY = $28.27 Billion $7.39 $2.98 $14.03 $0.57 $0.76 2020 $0.73 $0.38 $1.47 $(0.11)$0.07 PENSION - FUNDED RATIOS 2021 Funding Status As of June 30, 2021 ($ in Billions) INSURANCE - FUNDED RATIOS 2021 Actuarial Valuation ResultsEach year the funding levels of the CERS, KERS, SPRS, and Insurance plans are determined by the annual actuarial valuation based on assumptions set by the Boards for the Fiscal Year ending June 30. In summary, total pension unfunded liabilities decreased by $0.72 billion primarily due to investment gains received during the fiscal year. There was a decrease in all funds except for CERS Hazardous which had a slight increase of $0.02 billion due to a $53 million loss from the liability experience. Total insurance unfunded liabilities decreased a total of $0.58 billion due to investment gains and lower than expected healthcare premium liabilities. Total KPPA unfunded liabilities decreased by $1.30 billion. ACTUARIAL REPORT 21 Summary of Actuarial Valuation Results as of June 30, 2021 ($ in Millions) CERS Nonhazardous CERS Hazardous KERS Nonhazardous KERS Hazardous SPRS TOTALKPPA ACTUARIALLY DETERMINED CONTRIBUTION RATES Pension Funds 23.40%42.81%7.82%31.82%126.40% Insurance Funds 3.39%6.78%2.15%0.00%14.11% Amortization Cost to be Allocated N/A N/A $994 N/A N/A Total Calculated Employer Contribution 26.79%49.59%9.97%1 31.82%140.51% FUNDED STATUS AS OF VALUATION DATE PENSION FUNDS Actuarial Liability $14,895 $5,630 $16,321 $1,295 $1,053 $39,194 Actuarial Value of Assets $7,716 $2,629 $2,736 $782 $323 $14,186 Unfunded Liability on Actuarial Value of Assets $7,179 $3,001 $13,585 $513 $730 $25,008 Funding Ratio on Actuarial Value of Assets 51.80%46.69%16.76%60.41%30.69%36.19% Market Value of Assets $8,566 $2,914 $3,019 $866 $356 $15,721 Unfunded Liability on Market Value of Assets $6,329 $2,715 $13,303 $429 $697 $23,473 Funding Ratio on Market Value of Assets 57.51%51.77%18.50%66.87%33.83%40.11% INSURANCE FUNDS Actuarial Liability $3,451 $1,751 $2,574 $424 $272 $8,472 Actuarial Value of Assets $2,947 $1,476 $1,291 $575 $223 $6,512 Unfunded Liability on Actuarial Value of Assets $503 $276 $1,283 ($151)$49 $1,960 Funding Ratio on Actuarial Value of Assets 85.42%84.26%50.17%135.47%81.96%76.86% Market Value of Assets $3,247 $1,628 $1,419 $634 $247 $7,175 Unfunded Liability on Market Value of Assets $204 $123 $1,155 ($209)$25 $1,298 Funding Ratio on Market Value of Assets 94.10%92.95%55.14%149.29%90.79%84.68% 1Beginning with Fiscal Year 2021, all KERS Nonhazardous employers pay the normal cost plus a monthly invoice representing their fixed dollar allocation. Economic Assumptions as of June 30, 2021 CERS Nonhazardous CERS Hazardous KERS Nonhazardous KERS Hazardous SPRS Assumed Investment Return - Pension 6.25%6.25%5.25%6.25%5.25% Assumed Investment Return - Insurance 6.25%6.25%6.25%6.25%6.25% Inflation Factor 2.30%2.30%2.30%2.30%2.30% Payroll Growth 2.00%2.00%0.00%0.00%0.00% EXPERIENCE STUDY AND ECONOMIC ASSUMPTIONSRegular experience studies help ensure the underlying economic and demographic assumptions (such as expected payroll growth, investment returns, and retiree life expectancy) accurately reflect plan experience. Accuracy is important because these assumptions are used to calculate the annual employer contribution rate that will allow the systems operated by KPPA to pay for current and future retiree benefits. Experience studies are performed by KPPA’s independent actuary at least every five years to compare each plan’s actual experience to what had been expected (the assumptions). The most recent Experience Study was completed in April 2019. Based on that study, retirement rates, termination rates, disability incidence rates, salary increase assumptions and mortality assumptions were adjusted or reaffirmed. Economic assumptions set by the 2019 Study remained the same in Fiscal Year 2021. 22 CERS Nonhazardous is the largest system managed by the KPPA, accounting for 59.8% of the total membership and 51.6% of the total assets within the KPPA. — On average, a retired CERS Nonhazardous member in 2021 is 70.9 years old and receives $1,001 per month ($12,017 annually) in pension benefits. This represents the highest average age for retirees and the lowest average monthly benefit payment of all systems operated by KPPA. — There are more active employees paying into the plan (80,378) than retirees drawing benefits (63,566). — The Combined Pension and Fiduciary Net Position was $11.8 billion as of June 30, 2021, compared to $9.6 billion in 2020. ACTIVE EMPLOYEES VS RETIRED 35,000 50,000 65,000 80,000 95,000 RetiredActive 2021202020192018201720162015201420132012 As of the June 30, 2021 Valuation, retirees and beneficiaries account for 59% of the pension fund unfunded liability. Active member covered payroll continued its trend of decline, decreasing by 3.7% in Fiscal Year 2021. 59% Retirees Total Actuarial Liability $14.9B UnfundedLiability$7.2B 4%Inactive 37%Active Assets $7.7B Active Inactive Retired Total Tier 1 28,381 49,898 62,586 140,865 Tier 2 12,873 17,713 943 31,529 Tier 3 39,124 28,071 37 67,232 Total 80,378 95,682 63,566 239,626 MembershipAs of June 30, 2021 Senate Bill 2 (2013 Regular Session) required the General Assembly to fully fund the Actuarially Required Contribution and established the Tier 3 Hybrid Cash Balance plan. Based on current assumptions, the Pension and Insurance plans will be 100% funded by Fiscal Year 2049. 15% 20% 25% 30% Actual Recommended 20222021202020192018201720162015201420132012 *Beginning with Fiscal Year 2019, increases are capped by law at 12% annually until full contribution rate is achieved. Established by the Kentucky General Assembly on July 1, 1958 CERS NONHAZARDOUS 23 A total of 241 employers participate in the CERS Hazardous system. CERS Hazardous members include, but are not limited to, active law enforcement, probation and parole officers, detectives, pilots, paramedics, and emergency medical technicians, with job duties that require frequent exposure to a high degree of danger and also require a high degree of physical condition. — On average, a retired CERS Hazardous member in 2021 is 62.4 years old and receives $2,398 per month ($28,781 annually) in pension benefits. This represents the lowest average age for retirees and the second-highest average monthly benefit payment of all systems managed by KPPA. — There are more active employees paying into the plan (9,138) than retirees drawing benefits (8,814). — The Combined Pension and Fiduciary Net Position was $4.5 billion as of June 30, 2021, compared to $3.7 billion in 2020. ACTIVE EMPLOYEES VS RETIRED 4,000 6,000 8,000 10,000 RetiredActive 2021202020192018201720162015201420132012 As of the June 30, 2021 Valuation, retirees and beneficiaries account for 66% of the pension fund unfunded liability. Active member covered payroll continued its trend of decline, decreasing by 2.3% in Fiscal Year 2021. 66% Retirees Total Actuarial Liability $5.6B UnfundedLiability$3.0B 1%Inactive 33%ActiveAssets $2.6B Active Inactive Retired Total Tier 1 3,552 1,431 8,787 13,770 Tier 2 1,800 608 23 2,431 Tier 3 3,786 1,204 4 4,994 Total 9,138 3,243 8,814 21,195 MembershipAs of June 30, 2021 Senate Bill 2 (2013 Regular Session) required the General Assembly to fully fund the Actuarially Required Contribution and established the Tier 3 Hybrid Cash Balance plan. Based on current assumptions, the Pension and Insurance plans will be 100% funded by Fiscal Year 2049. 30% 40% 50% Actual Recommended 20222021202020192018201720162015201420132012 *Beginning with Fiscal Year 2019, increases are capped by law at 12% annually until full contribution rate is achieved. Established by the Kentucky General Assembly on July 1, 1958 CERS HAZARDOUS 24 Of note this fiscal year, the legislature enacted House Bill 8 during the 2021 Regular Session. This new law adjusted the method for calculating KERS Nonhazardous employer contributions from a percent of payroll model to a fixed allocation funding method. House Bill 8 requires that a percentage of the Unfunded Accrued Liabililty Payment (UAL) be assigned to each employer based on total UAL as of 6/30/2019: • Each employer’s 2019 percentage of the liability is multiplied by the current year UAL to calculate the UAL flat dollar amount each employer must pay for that year. • UAL dollar amount is determined each year based on the current year UAL, but always applies the same 2019 percentage. Beginning with Fiscal Year 2022, under the fixed allocation funding model, employers pay the normal cost plus a monthly invoice representing their fixed dollar allocation. House Bill 8 Contribution Comparison July 2020 July 2021 Payroll $125,210,854 $120,633,690 Employee Count 33,111 31,438 Employer Contribution $95,625,051 $12,609,615 Contribution Rate*84.43%10.10% UAL Payment N/A $ 84,528,577 Total Employer Contribution $95,625,051 $97,138,192 *The July 2021 employer contribution rate reflects the normal cost. ACTIVE EMPLOYEES VS RETIRED 20,000 30,000 40,000 50,000 RetiredActive 2021202020192018201720162015201420132012 72%Retirees Total Actuarial Liability $16.3B UnfundedLiability$13.6B 4% Inactive As of the June 30, 2021 Valuation, retirees and beneficiaries account for 72% of the pension fund unfunded liability. 24%Active Active member covered payroll continued its trend of decline, decreasing by 4.7% in Fiscal Year 2021. Assets $2.7B Active Inactive Retired Total Tier 1 14,103 31,240 44,184 89,527 Tier 2 5,234 8,715 271 14,220 Tier 3 10,372 9,724 14 20,110 Total 29,709 49,679 44,469 123,857 MembershipAs of June 30, 2021 0% 20% 40% 60% 80% 100% Actual Recommended 20222021202020192018201720162015201420132012 Senate Bill 2 (2013 Regular Session) required the General Assembly to fully fund the Actuarially Required Contribution1 and established the Tier 3 Hybrid Cash Balance plan. Based on current assumptions, the Pension and Insurance plans will be 100% funded by Fiscal Year 2049. 1 Quasi-governmental agencies maintained the Fiscal Year 2018 rate for Fiscal Years 2019 - 2021. Beginning with Fiscal Year 2022, all employers pay the normal cost plus a monthly invoice representing their fixed dollar allocation. Established by the Kentucky General Assembly on July 1, 1956 KERS NONHAZARDOUS Kentucky Employees Retirement System 25 The KERS Hazardous pension and insurance funds currently have the highest funding ratios (60.4% and 135.5%, respectively) among all systems managed by KPPA. FUNDING RATIO CONSIDERATIONSIdeally, the funding ratio of each plan will be 100%, where the system has enough assets on hand to meet all required obligations. This means the KERS Hazardous insurance fund is in the enviable position of having 35.5% more assets on hand than what is needed. You may have noticed that this system’s pension fund is underfunded by approximately the same percentage as the insurance fund is overfunded, and wonder why the money can’t simply be shifted between funds to bring both to near-100% funded. The reason is federal law requires the money in each fund to be accounted separately and used to pay that specific liability, either pension or insurance. In other words, money earmarked to the insurance fund can’t be used to pay pension obligations, and vice versa. Therefore, the solution lies on the front end: the system’s actuary recommended allocating the employer’s contribution entirely to the pension fund beginning in 2020, with no additional money allocated to the insurance fund. This puts the money directly into the fund where it is needed most, while allowing the insurance fund’s ratio to gradually lower to 100%. The allocation percentages are reviewed each year and will be adjusted as needed. ACTIVE EMPLOYEES VS RETIRED 2,000 3,000 4,000 5,000 RetiredActive 2021202020192018201720162015201420132012 67% Retirees Total Actuarial Liability $1.3B Unfunded Liability $513M 4%Inactive As of the June 30, 2021 Valuation, retirees and beneficiaries account for 67% of the pension fund unfunded liability. 29%Active Active member covered payroll continued its trend of decline, decreasing by 7.4% in Fiscal Year 2021. Assets $782M Active Inactive Retired Total Tier 1 1,122 1,807 3,294 6,223 Tier 2 670 1,278 42 1,990 Tier 3 2,017 3,428 3 5,448 Total 3,809 6,513 3,339 13,661 MembershipAs of June 30, 2021 20% 25% 30% 35% 40% Actual Recommended 20222021202020192018201720162015201420132012 Senate Bill 2 (2013 Regular Session) required the General Assembly to fully fund the Actuarially Required Contribution and established the Tier 3 Hybrid Cash Balance plan. Based on current assumptions, the Pension and Insurance plans will be 100% funded by Fiscal Year 2049. Established by the Kentucky General Assembly on July 1, 1956 KERS HAZARDOUS Kentucky Employees Retirement System 26 Active Inactive Retired Total Tier 1 370 180 1,538 2,088 Tier 2 183 68 1 252 Tier 3 222 141 1 364 Total 775 389 1,540 2,704 MembershipAs of June 30, 2021 30% 60% 90% 120% 150% Actual Recommended 20222021202020192018201720162015201420132012 Senate Bill 2 (2013 Regular Session) required the General Assembly to fully fund the Actuarially Required Contribution and established the Tier 3 Hybrid Cash Balance plan. Based on current assumptions, the Pension and Insurance plans will be 100% funded by Fiscal Year 2049. The State Police Retirement System (SPRS) was established on July 1, 1958. With membership consisting solely of full-time state troopers employed in positions by the Kentucky State Police, the SPRS is the smallest system managed by KPPA. It also has the highest employer contribution rate of all our systems. — On average, a retired Kentucky state trooper in 2021 is 64 years old and receives $3,319 per month ($39,833 annually) in pension benefits. All trooper positions are considered to be hazardous. — There are more retirees drawing benefits (1,540) than active employees paying into the plan (775). — Forty-seven percent (47%) of current SPRS retirees served 25 or more years as a Kentucky State Trooper. — The Combined Pension and Fiduciary Net Position was $604 million as of June 30, 2021, compared to $495 million in 2020. ACTIVE EMPLOYEES VS RETIRED 500 1,000 1,500 2,000 RetiredActive 2021202020192018201720162015201420132012 As of the June 30, 2021 Valuation, retirees and beneficiaries account for 81% of the pension fund unfunded liability. Active member covered payroll continued its trend of decline, decreasing by 2.9% in Fiscal Year 2021. 81%Retirees Total Actuarial Liability $1.1B UnfundedLiability$730M 1% Inactive 18% ActiveAssets $323M Established by the Kentucky General Assembly on July 1, 1958 STATE POLICE RETIREMENT SYSTEM ACTIVE MEMBERSHIP RETIRED MEMBERSHIP MEMBERSHIP SUPPORT WEBINAR & COUNSELING APPOINTMENTS5,380 HEALTHCARE COVERED LIVES98,557 SERVICE PURCHASE & BENEFIT ESTIMATES14,033 NEW RETIREMENTS 6,545 DISABILITY APPLICATIONS466 REFUNDS PROCESSED4,303 ACCOUNT AUDITS14,863 INBOUND CALLS 283,012 WEBSITE PAGEVIEWS4,935,643 Our Six Mandates 1. Strive for appropriate funding for all plans. 2. Provide members with efficient access to information and helpful counseling to meet their individual needs. 3. Manage the assets in accordance with each plan’s needs while adding value to a passive portfolio. 4. Communicate effectively with all constituents, while ensuring appropriate transparency. 5. Maintain a work environment that promotes employee inclusion and diversity, effectiveness, morale, safety, and retention. 6. Insist on a culture of continuous enhancement to everything we do. KPPA is responsible for the investment of funds and administration of pension and health insurance benefits for over 401,000 active, inactive and retired state and local government employees, state police officers, and non-teaching staff of local school boards and regional universities. ABOUT KPPA GOVERNANCE AND ADMINISTRATION During the fiscal year, KPPA substantially completed the separation of the CERS system from the KERS and SPRS systems, as mandated and outlined in House Bill 484 (2020) and House Bill 9 (2021).Together, the two bills made significant changes to the governance and administrative structure of the former Kentucky Retirement Systems. Visit our website, kyret.ky.gov, and go to the About tab to view the KPPA, CERS, and KRS meeting calendar. All meetings are livestreamed on the KPPA Facebook page. PUBLIC PENSION OVERSIGHT BOARDThe Public Pension Oversight Board (PPOB) was established by the Kentucky General Assembly in 2013 to assist with their review, analysis, and oversight of KPPA. KPPA staff routinely attend the monthly PPOB meetings to provide information about KPPA and the systems it operates. KPPA is actively engaged with the Oversight Board and continues to work cooperatively with policymakers to find solutions to pressing issues. Visit the Legislative Research Commission's website at legislature.ky.gov to access the legislative calendar and live coverage. @KYretirement • CERS Board Chair • KRS Board Chair • CERS Investment Committee Chair • CERS Trustee, Elected by Members* • CERS Trustee, Governor Appointee* • KRS Investment Committee Chair • KRS Trustee, Elected by Members** • KRS Trustee, Governor Appointee** *Selected by the CERS Board Chair**Selected by the KRS Board Chair KPPA BOARD • 3 trustees elected by members • 6 trustees appointed by the Governor selected from lists of candidates provided by KACo, KLC and KSBA CERS BOARD • 3 trustees elected by members • 6 trustees appointed by the Governor KRS BOARD 27 KENTUCKY PUBLIC PENSIONS AUTHORITY 1260 LOUISVILLE ROAD, FRANKFORT, KY 40601 Toll Free 1-800-928-4646 The Kentucky Public Pensions Authority is responsible for the investment of funds and administration of pension and health insurance benefits for over 401,000 active and retired state and local government employees, state police officers, and nonteaching staff of local school boards and regional universities. CONNECT WITH US! @KYretirement@KYretireSelf ServiceKYRET.KY.GOV Photo, front and back cover: The Cumberland Gap at sunrise from the Pinnacle Overlook at the Cumberland Gap National Historical Park.