A Citizen's Guide to Kentucky's Pension Crisis | Page 10

Comparison to other states
The Public Plans Database maintained by The Center for Retirement Research
at Boston College and the National Association of State Retirement Administrators annually tracks the performance of public pension systems on a number
of key metrics. Since investment returns contributed to underfunding, the table
below shows how the investment performance of the teachers’ (KTRS) and state
employees’ (KERS) systems compares with national averages for similar plans
for the years 2001 to 2013.

Annualized Investment Returns for KERS and KTRS, 2001-2013

Source: Public Plans Data, Center for Retirement Research, Boston College

High investment costs a factor
Other than the performance of financial markets, an important factor that affects
investment returns is how much money a retirement system spends to make
investments. A report by CEM Benchmarking (a global benchmarking firm specializing in cost and performance of investments and administration) found the
Kentucky Retirement System’s annual investment expenses in 2014 were actually
more than 100 percent higher than what the system reported: $126.6 million
instead of the $62.4 million the system reported. CEM Benchmarking found that
much of the increase resulted from newly disclosed fees paid to private equity
firms. The report also found that the investment fees paid by the retirement system were 9 percent higher than those paid by 18 similar public retirement plans
(the plans were not identified in the report). Kentucky’s total investment cost
was 81.6 basis points compared to an average of 74.8 basis points for peer funds
(one basis points equals 0.01%).

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