A new set of assumptions approved by the Teachers’ Retirement System of Kentucky will add $3 billion in unfunded liability to its books and require up to $200 million more annually from the state budget.

The system’s Board of Trustees on Monday approved recommendations from an experience study intended to set more realistic numbers for its assumed rate of investment return, payroll growth of educators and life expectancy of its retirees, the Lexington Herald-Leader reported.
The $20.5 billion TRS provides retirement benefits to 56,629 retired Kentucky educators, with 73,151 more educators actively enrolled.

Actuarial changes approved Monday will reduce the agency’s funding level from 58.4% to 54%, raising its unfunded liability ratio from $14.78 billion to $17.73 billion, according to a board presentation.

The TRS board approved recommendations that will lower the assumed rate of return on the agency’s investments, or its discount rate, from 7.5% to 7.1%. Assumed payroll growth for its members will drop from 3.5% annually to 2.75%.

The life expectancy formula will be changed to reflect Americans living longer generally but also teachers as a group tending to be better educated and healthier, said Gary Harbin, the agency’s executive secretary. A retiree who lives longer will collect more benefits in retirement.