KRTAAnnual

Convention

April 23, 2019

Gary L. Harbin, CPAExecutive Secretary

Agenda• Overview• Benefits of Kentucky Teachers Not Being In Social Security• How Pensions Work• Health Care Report• Personalized Medicine

Overview

2018-20 Additional Funding Summary

TRS Requested$1.09 B

Approved$1.09 B100%

State also paid nearly all contributions recommendedby the actuary for fiscal years 2017 & 2018.

Assets

$ 19,496$ 19,982

Assets

$ 1,214$ 1,190

Actuarial Status

Unfunded

$ 14,300$ 13,727

Unfunded

$ 2,127$ 3,470

PENSION

Liabilities

$ 33,796$ 33,709

Liabilities

$ 3,341$ 4,660

Percent

57.7%59.3%

Percent

36.3%25.5%

MEDICAL

Dollars in millions

GASB 67

As of June 30, 2018

GASB 74

TRS Benefits Protect At-Risk Population

Member Recipients

Females 72%

Males 28%

Longevity for TRS Retirees

4,800

5,000

5,200

5,400

5,600

5,800

6,000

6,200

6,400

6,600

6,800

2010 2011 2012 2013 2014 2015 2016 2017 2018

5,107

5,276 5,297

5,535

5,692

5,864

6,072

Retirees Over 80As of Dec. 31

6,377

Age 100 or more: 39

6,703

• TRS pays:• $174 million in retirement annuity benefits (July

2018)• $18 million in medical benefits (monthly average)

• 91% of TRS pension benefits stay in Kentucky• $1.9 billion a year paid into Kentucky’s

economy because of pension benefits

Retired teachers’ economic

impactacross

Kentucky

INVESTMENT PERFORMANCETRS PENSION RETURNS

AS OF JUNE 30, 2018

1-year 3-year 5-year 10-year 20-yearGross 10.81% 8.16% 9.44% 8.02% 6.27%

Benchmarks 9.30% 8.15% 8.98% 7.48% N/ARankings Top 4% Top 8% Top 8% Top 2% N/A

Net 10.51% 7.86% 9.22 % 7.80% 6.14%

30-year compounded gross return

8.39%

Transparent Low Fees & Investment CostsFees & investment costs documented annually in the TRS annual report

FY 2018Total $56 M

28/100 of 1%of

Pension Assets

Board of TrusteesFiduciaries of TRS

RON SANDERS

Chair, Hodgenville

JOSH UNDERWOOD

Tollesboro

LAURA SCHNEIDER

Walton

ALLISON BALL

State Treasurer

WAYNE LEWIS, Ph.D.

Education Commissioner

BRENDA MCGOWN

Bowling Green

JOHN BOARDMAN

Lexington

FRANKCOLLECCHIA

Louisville

HOLLIS GRITTON

Union

ALISON WRIGHT

Vice Chair, Georgetown

LYNNPATTERSON, Ed.D.

Murray

Structure exceeds industry standards, recommended for use elsewhere

Investment Committee

7 trustees

Includes lay trustees who are bankers

Includes two gubernatorial appointees with financial experience

Two recognized outside experts since 2009

Rockefeller Family Fund adviser

Former director of one of U.S.’s largest public pensions (New York teachers)

13

Leadership

N.O. Kimbler 1940-1957James L. Sublett 1958-1970Ted Crosthwait 1970-1976Pat N. Miller 1976-2000Gary L. Harbin 2000-present

H.B. Fithian 1956-1959Ralph B. Knoebber 1959-1960William D. Chilton 1960-1969George Arvin 1969-1978Mim Clark 1978-1981Charles Bratton 1981-1984Bobby McKee 1985-1989Pamela Johnson 1989-2001William Hanes 2001-2007Mike Burnside 2007-2011William Thielen 2012-2016David Eager 2016-present

Benefits of Kentucky Teachers Not Being In Social Security

Social Security insolvent in 2034

Cost Comparison: Social Security vs. No Social Security

Contributions needed to replace 75% of income upon retirement

12.4

12.5

15

0

5

10

15

20

25

30

Social Security Worker Kentucky Teachers

Perc

enta

ge o

f Pay

Individual AccountSocial Security

24.9

TRS Early HistorySocial Security created

Teachers not covered because of constitutional concerns about federal taxing state and local governments

TRS establishedBy General Assembly in special session

University of Kentucky studyFinds state’s teachers can’t afford to retire, and that Kentucky had trouble attracting and retaining teachers

Social Security expandsSome states and groups – including Kentucky teachers – do not enter because of added cost of Social Security

1935 1936 1938 1940 1950s

TRS opensAfter initial funding is received

What Social Security Is

Social safety net program tiered to lower-income workers

While it has become the basis of retirement income for many Americans, it wasn’t intended that way.

• Windfall Elimination Provision (WEP)

• Government Pension Offset (GPO)

Impacts of Federal Law on Social Security

Visit Social Security office or website at www.ssa.govfor more information

http://www.ssa.gov/

Windfall Elimination Provision

• WEP adjustment reduces the benefit for government workers who don’t pay into Social Security for 30 years.

• If you paid into Social Security on 30 years of substantial earnings you are not affected by WEP.

• The maximum monthly amount your benefit may be reduced because of the WEP as of 2019 is $463.https://www.ssa.gov/planners/retire/wep-chart.html

https://www.ssa.gov/planners/retire/wep-chart.html

Government Pension Offset• Federal law affects spouse’s or widow(er)’s benefits• Social Security spouse’s benefits provide income for those who

have minimal benefits on their own.• Dual-Entitlement – When both husband and wife are eligible to

draw Social Security benefits, the spouse gets the higher of either their own benefit or half of their spouse’s benefit, not both.

How Pensions Work

Who Are TRS Members?

95% of TRS members employed by non-university employer and benefit replaces Social Security

5% employed by university and benefit supplements Social Security

173 school districtsState pays employer

contribution

17 education agenciesState pays employer

contribution

KCTCSKCTCS pays

employer contribution

Five universitiesUniversity pays

employer contribution

C+I=BContributions

+

Investment earnings=

Benefit

The Formula

TRS Now

in billions

Beginning Balance as of July 1, 1985 $ 1.8.

Member & Other Contributions 7.3.Employer Contributions 13.4.Investment Income 26.5.Benefit Payments & Refunds (28.7)Administrative Expenses (0.2)Ending Balance as of June 30, 2018 $20.1.

Schedule of Funds Available for Retirement Benefits

Kentucky’s largest financial institution

Health Care Report

Shared solution that provides permanent funding for retiree health care

Shared Responsibility

$5 Billion Reductionin

Liability for State

Shared Responsibility Results

Shared Responsibilitybecomes law

TRS MEDICAL INSURANCEFunded Status

2.4% 2.9% 3.5%

7.5% 8.6%9.4%

11.7%

15.9%18.1%

21.9%

26.7%

36.3%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Two Plans for TRS Health Benefits

KEHPKentucky

Employees’ Health Plan

• Under 65 and not Medicare-eligible• Same fund as active teachers and state employees• Coverage options

MEHPMedicare

Eligible Health Plan

• Medicare-eligible or 65 & over• Exclusively TRS members• One Plan

Funded Status Details

KEHP• Prefunding will start when over-65 coverage is

fully funded• Normal cost paid by state and enrolled retirees• State’s share of $70 million not funded in FY 2020

MEHP• 62% funded• Projected to be fully funded in 5 years• Normal cost for over-65 health care continues upon

full funding

Still Bending the Trend

Medicare Advantage starts

$210$232

$260$274

$288$315

$283 $278 $285

$342

$289$270

$290 $290

$240$260 $252 $258

$226

$0

$50

$100

$150

$200

$250

$300

$350

$400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

MEHP TRS MEHP Premiums

PersonalizedMedicine

50%

4th

NationallyPercentage of medications taken by patients that are ineffective

Source: Coriell Life Sciences

Where adverse drug reactions ranks as a leading cause of death

What TRS Data Shows

15Average number of prescriptions

One-year survey of 34,000 members

TRS Solution:Personalized Medicine Partnership

Lucy B. Wells, RPh,Clinical Director

Toll free: 855-218-5979

You Your Doctor Your Pharmacist

How Personalized Medicine Can HelpYour DNA matters

Using DNA to see what drugs will be safe and effective — Pharmacogenomics

StepsCollect genetic informationEmpower pharmacistsCommunicate the Medication Action Plan

64% resulted in medication change recommendation94% of recommendations accepted by prescribing doctor

In six months …17% reduction in spending after six months for those involved2.5% increase in spending for control group not involved

Early ResultsThe Data

Early ResultsA Real Story

• TRS member treated at emergency room for heart attack• At release, member was prescribed a blood thinner• The member contacted a Know Your Rx pharmacist to review DNA

test results• The Know Your Rx pharmacist identified the drug wouldn’t work• That led to a change in the drug prescribed

TRSwon FIRST PLACE in

SALGBA Challengefor its pharmacogenomics pilot

Presented at 2018 SALGBA NationalConference

All contributing members and retirees have the privilege to vote.

Trustee Elections Each SpringApril May

Our Members Come First!

800-618-1687

502-848-8500

https://trs.ky.gov

Teachers’ Retirement Systemof the State of Kentucky

Protecting & Preserving Teachers’ Retirement Benefits

Slide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Cost Comparison: Social Security vs. No Social SecuritySlide Number 19Slide Number 20Slide Number 21Slide Number 22Slide Number 23Slide Number 24Slide Number 25Slide Number 26Slide Number 27Slide Number 28Slide Number 29Slide Number 30Slide Number 31Slide Number 32Slide Number 33Slide Number 34Slide Number 35Slide Number 36Slide Number 37TRS Solution:�Personalized Medicine PartnershipSlide Number 39Slide Number 40Slide Number 41won FIRST PLACE inSlide Number 43Slide Number 44