KPPA audit committee: retirement allowance account is an accounting fund; JPMorgan/Chase issues remain under review

At a special meeting of the Kentucky Public Pensions Authority Audit Committee, Mike Lamb presented a draft memo concluding the retirement allowance account (RAA) is "the equivalent of a governmental accounting fund balance" maintained in KPPA’s general ledger rather than a bank, custodial or investment account, and the committee discussed related bank-custody questions that remain open.

The finding matters because it affects where funds are legally held and how they can be invested. "If this were in the private sector, I would say the retirement allowance account . . . would be the equivalent of retained earnings," Lamb said, describing how the RAA reconciles in KPPA’s annual reports. Trustees noted that equating the RAA to fund balance should clarify earlier confusion about whether the RAA must sit in a specific bank and whether it constrains investing decisions.

Kristen from internal audit told the committee the RAA memo "does address that audit finding" and said that if management and trustees accept the definition the audit item could be closed. At the same time, internal audit and trustees agreed that separate open audit findings tied to JPMorgan, Bank of New York Mellon and Chase accounts remain unresolved and require additional research and verification before those items are closed. "We have separate JPMorgan audit findings. I hope to have them at the next audit committee meeting," Lamb said.

Lamb provided several balance figures during the discussion: general-ledger balances for plan-specific retirement allowance accounts were given as roughly $720,000 (CERS nonhazardous) and $747,000 (KERS), while the clearing account — which collects employer contributions and turns over daily — had about $5,000,000 on hand; he also noted the systems hold roughly $29 billion in total assets. Lamb said money in JPMorgan accounts is interest-bearing and that staff reconciles and controls movements out of those accounts through KPPA’s transaction-approval systems.

Trustees pressed for written clarity on communications with the state finance cabinet after Lamb described a recent exchange in which the finance cabinet suggested, if KPPA wanted statutory changes, that the agency could use an upcoming legislative session to pursue them. "I would ask that the conversations that you've had with the finance cabinet about these issues be codified for the entire committee so that there's no misinterpretation," one trustee said. Lamb offered to ask the finance cabinet for a written opinion but cautioned it might require a specific legal question and counsel review.

The committee did not vote on the RAA memo at the meeting. Members directed staff to continue research on the JPMorgan/Chase/BNY Mellon questions, to provide documentation to internal audit, and to return with recommendations and any requested legal guidance at the next audit-committee meeting.

What’s next: staff will continue the JPMorgan/Chase account research and provide internal audit and trustees with the supporting documentation; the committee expects to consider action at the next scheduled meeting.