Archive for Tuesday, December 2, 2008

KPERS loses nearly 27 percent of value; pay raises doubtful for state workers

Senator says pay raises unlikely, urges Legislature to consider increasing contributions to keep public retirement system sound

December 2, 2008


The state’s public employee pension system has suffered a record drop on the stock market, losing more than one-quarter of its value this year, officials reported Tuesday.

“These losses are very unprecedented,” said Glenn Deck, executive director of the Kansas Public Employees Retirement System.

The KPERS downturn — combined with other budget problems — prompted Senate President Steve Morris, R-Hugoton, to say that a state employee pay raise and cost-of-living increases for retirees were probably out of the question.

And, he said, the Legislature should consider within two years increasing the state’s contributions to the retirement system.

“I don’t think we have any choice,” Morris said during a meeting of the House-Senate Committee on Pensions, Investments and Benefits.

Lawmakers start the legislative session next month and already face a $147 million budget shortfall that could balloon to $1 billion within the year.

The drop in the KPERS assets has been dramatic and prompted comparisons to the Great Depression in the 1930s.

The total assets of KPERS stands at $10.1 billion. That is a 22 percent drop in the fiscal year that started July 1 and a 26.8 percent drop for the calendar year. The portfolio had been at $14.2 billion in 2007.

KPERS officials said there will likely be a “snap back” but added that the recovery would have to be significant and long to make up the losses.

“There is no way to recover from this type of event very quickly,” Deck said.

But Deck emphasized that current KPERS benefits are “safe.” The system pays out about $1 billion per year in benefits, he said.

Deck said another “Great Depression” round of stock losses and the state reneging on its contributions would be the only way benefits would be in danger.


LogicMan 9 years, 6 months ago

"the state reneging on its contributions would be the only way benefits would be in danger."Probably a "dumb question", but why IS the state running such a fund?There are plenty of private very-low-cost (e.g., vanguard) retirement programs (401Ks, IRAs, etc.) that it and the employees could contribute to, and the state wouldn't be on the hook for benefits, losses, management costs, etc.?

Jock Navels 9 years, 6 months ago

well, logicMan, certain public employees in the state have 4% or so of their paychecks withheld and put into the KPERS retirement fund. The withholdings are matched by their employer. When one of these folks (policemen, firemen, teachers to name a few) retire, they receive a monthly retirement check. It's an old fashioned 'defined benefit' prgram backed by the taxing authority of the state. Most, if not all, states have such a mandatory retirement system for their public employees. I get one of those checks. Believe me, it's not a big check. But then neither were the paychecks. So now I'm an older person, retired and living on a fixed income. I played fair by the rules, and now i expect the rules to play fair by me. Your sentiment seems to lie in the 'privatize it to fix it' arena. If that's how you feel, I would expect you to feel that way about all aspects of life...let's privatize the judicial system too, and the roads, and the fire and legal security systems, oh, and the military defense system. With my guns, I can take care of myself...can you take care of yourself? Be careful what you wish just might get it.

guesswho 9 years, 6 months ago

It has to do with a defined benefit versus a defined contribution. A pension (which some companies and most states still have some form of) is a defined benefit - the employer takes the risk. Other retirement programs as mentioned are a defined contribution - you know how much you put in but what you get out depends on the market conditions - the worker takes the risk. A defined benefit means you know what you get - most companies are getting out of this because it is too costly (longer life expectancy, etc). Pension plans grew significantly between the 1940s and 1970s; defined contributions (401(k), etc) have been very popular the last 20-30 years.Generally, investments in defined benefits have higher returns then in 401(k) plans - they are usually managed always for the long term and usually have lower operating costs. (but, since 401(k) plans have been around for only 20 years or so, that may change)Really, no matter what type of plan it is, the market tanked which is hurting everyone. The state just can't 'get out' without having a massive payout which would be more expensive then waiting for the market to go back up.

bevy 9 years, 6 months ago

Those who recommend privatizing KPERS should also realize that those of us who work for state government do so for SIGNIFICANTLY less salary than those working in the private sector doing the same work. Yes, we are capable of working elsewhere (in fact I have, for most of my working life) but we choose to serve. We take less money up front to provide services for citizens, so please don't be angry that our pension plan has lost less money than yours. It's likely our payout will be far less, as well. Oh, and don't forget - we pay our taxes, too!

redfred 9 years, 6 months ago

The KPERS system requires that employers provide a "match" contribution along with the employees. All employers except the state have been doing this. For several years the state has been holding down taxes by not putting in their required match. So now we have a problem. Go figure!

Steve Jacob 9 years, 6 months ago

"Those who recommend privatizing KPERS should also realize that those of us who work for state government do so for significantly less salary than those working in the private sector doing the same work"Let's be honest. Government jobs are great in bad times. Sure pay is not as good as in the public, but it's safer.

Confrontation 9 years, 6 months ago

Less pay in the government? Hmmm, you must not work for KDHE. There are many overpaid and underworked employees there.

farva 9 years, 6 months ago

defined benefit plans are better and cheaper to operate than 401k type plans. Bot require the same employee/employer contribution, but defined benefit are much better managed, more diverse, and more stable. You may not make as much money, but you won't lose it either. I think it was the State of Michigan tried who tried to convert their pension to 401K--it lasted two years before they reverted back to the traditional system due to the higher costs of 401Ks. I don't feel sorry for the govt workers who have the option of going into the private sector, but there are many positions that are well underpaid that have no private sector alternative--natural sciences (biologists/conservationists, water/air quality scientists, etc) or social service workers are quick examples,. At least all state law enforcement officers, with the exception of one agency, are compensated adequately with better pension benefits (which they also pay more to receive)

Jingal 9 years, 6 months ago

To put a finer point on it:401(k) plans will always be more expensive (think about the economics of one pooled fund vs. 250,000+ individual funds).Various empirical studies place the performance gap between 401(k) accounts and defined benefit pools at 1.5 to 3% per year. Part of this is expenses; most is poor investment management decisions by individuals.Over an average working lifetime, every 1% difference in returns (from whatever source, either expense or performance) will equate to an approximate 20% reduction in the final benefit. For this reason defined benefit is almost always and everywhere a better return per $1 deposited/invested.The biggest single difference between a 401(k) and a Defined benefit plan, as stated elsewhere, is that in a 401(k) the individual bears the risks and reaps the rewards, vs. in a defined benefit plan where the sponsor bears the risks and keeps any rewards.Most private employers are getting out of the DB plans because they don't want the risk or expense, and don't mind giving it to their employees. To this point most states haven't been successful in offloading the risk - for various reasons, including organized resistance. But mostly because they can't produce a viable retirement benefit within a 401(k) structure, and are thus retiring workers who immediately need help to survive (google Nebraska Investment Council 401(k) for a nearby and recent example), or because when given the choice most workers can figure out which plan is best (see Florida and West Virginia for recent examples, in addition to Michigan).You may recall that from 1985 to 2001 there were outsized returns on average in the US capital markets. As a consequence, many states, like Kansas (as mentioned elsewhere), were able to reduce or just ignore their contributions, thus reaping the rewards. Whether these rewards accrued to the taxpayers (as the risks most certainly will) is another (very interesting) topic.It is true the State can't 'get out'. Various courts have ruled that the retirement plan in place is in essence a contractual obligation of the employer (the state) upon hire. For that reason a year or so ago a new version of KPERS was created for new hires that has a different cost and benefit structure. Although all future hires will be in the new plan, all existing participants (in the old plan) must receive their benefits as promised. For that reason even if they closed the doors tomorrow the retirement system will continue to crank out the benefits (and invest the assets) for another 40 or 50 years.And finally, most State workers have access to a 401(k) as well - only it is called a 457 plan. It is voluntary, and the state doesn't match any contributions, but it does provide a nice opportunity for supplemental savings.

frank mcguinness 9 years, 6 months ago

I'm just glad Lynn Jenkins is now our Congresswoman after the great success she had in her prior position. sarcasm

50YearResident 9 years, 6 months ago

Thank You President Bush! You may add this to your resume: I Bankrupt three companies and one Nation.....

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