MSU Faces $233.6M Liability in Kentucky Pension System Shortfall
Kentucky's troubled pension system is hitting public university budgets as the state struggles to shore up billions in unfunded liability.
New accounting regulations now require governmental agencies, like Murray State University, to share their proportional share of pension liabilities.
MSU alone is expected to carry more than $233 million in liability.
"We are all going to be facing this, as well as the state municipalities," said Vice President for Finance and Administration Jackie Dudley. "It will not impact what we spend everyday and how we operate but it will impact our net assets which is our savings account. So our savings account just went down $234 million."
Dudley briefed MSU's Board of Regents during a workshop on Thursday and again during a quarterly meeting Friday. She said the university expected the change but the total amount surprised her.
"It is higher than what I expected," said Dudley. "We tried to do some preliminary numbers and work with our sister schools in the state trying to look at what this impact might be, and I would say it is double what we expected anyway."
However, MSU's total liability could change depending on factors at the state level.
"If the markets actually go better, they're generating more funds, that liability is going to be funded indirectly," said Dudley. "If the state, in their cycle year, starts to fund more of that pension liability, that will reduce how much we are required to put forward in future years."
However, analysts have said that the state will not be able to "invest its way out" of the pension crisis
Kentucky Retirement Systems is facing a $9.4 billion shortfall -- nearly the size of Kentucky's overall budget -- with a projected return on investment rates at 4 percent.
In 2013, lawmakers passed pension reforms moving new state workers onto 401(k)-style plans, required the state to make recommended contributions to the system in full and tweaked the tax code to generate more money for the system.
The pension system has 22 percent of the money needed to pay current and future pension recipients. That funding ratio will increase to 32 percent over the next 20 years according to R.V. Kuhn Inc., a consulting firm. Based on current salaries and employment numbers, the state's funding ratio is expected to decrease to 15 percent over the next few years. In order to remain solvent, the state's annual investment to the system will have to increase each year from $560 this fiscal year to $1.4 billion in 2034.