Topeka ? State employees — including those at Kansas University — may have to pay more toward retirement to help dig their pension fund out of a deepening hole, a key lawmaker said Tuesday.

The Kansas Public Employees Retirement System is projecting a $2.7 billion gap between its assets and projected liabilities by the end of the year.

“That’s serious,” Senate President Dave Kerr, R-Hutchinson, said. “It will be awfully hard for the employer alone to bail this whole thing out.”

During a House-Senate committee meeting on pension issues, Kerr opened a discussion on whether the state could survive a court challenge if it tried to increase the amount employees paid into KPERS or changed the benefit plan.

Legislative staff told lawmakers the state and its employees have a contractual relationship and generally courts won’t approve of one side changing the deal against the wishes of the other side.

State Sen. Jim Barone, D-Frontenac, said the fiscal condition of KPERS was the fault of state government — not its employees — because the Legislature and past governors have refused to contribute enough to the pension fund.

“We have consistently undershot what the (actuaries) told us to do,” Barone said.

The unfunded liability, or gap between current assets and projected benefits paid to retirees, has increased steadily in recent years. It averaged $1.4 billion from 1997 to 2000, then jumped to $1.8 billion in 2001 and $2.83 billion in 2002.

An unfunded liability is not a bad thing, KPERS officials have said in the past, unless it continues to grow. Then, the additional costs must be passed on to future generations of retirees. It also has been compared to a consumer who pays off only a small portion of his credit card bill each month and ends up paying substantially more in interest.

In 2001, a survey of 81 state and local government retirement systems showed Kansas among the bottom three in making employer contributions at the actuarial-required rate.

But Kerr said a combination of factors had battered the pension system — including losses in the stock market and state budget problems — and that means all involved parties probably will have to sacrifice to fix it.

“Everybody needs to be in the water,” he said.

One proposal under consideration is to issue $500 million in pension obligation bonds, which supporters say could earn more in interest payments through investments than it would cost to pay back.

The committee will vote on that proposal in December.

Critics say the measure is too risky because the investments could go sour, as they have in recent years.

KPERS provides benefits to nearly 58,000 retired state employees, teachers and other government workers.