Archive for Monday, September 7, 2009

Pension system problems mounting

September 7, 2009

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— While budget woes have gotten most of the attention in the Statehouse, a more long-term financial problem is appearing on the Legislature’s radar.

The Kansas Public Employees Retirement System has been rocked by the current recession. KPERS’ investment returns were down 19.2 percent in the last fiscal year.

KPERS’ unfunded actuarial liability was $8.3 billion as of Dec. 31, 2008 — the day officials took a snapshot of the system. From the previous year, that represents a $2.7 billion increase in the unfunded liability, which is the difference between the system’s assets and future pension obligations.

Glenn Deck, executive director of KPERS, says that current retirement benefits are safe, but that the state needs a long-term strategy to reduce the liability.

The fix “is very likely going to be a multi-year effort,” he said.

KPERS provides retirement plans for state and local public employees, including teachers, and has more than 250,000 members.

The House-Senate Pensions, Investments and Benefits Committee has given Deck the OK to come up with a proposal for consideration in the 2010 session that starts in January.

“We should put everything on the table,” said Committee Chairman Rob Olson, R-Olathe. “There are things that all of us are going to hate. We need to look at them all,” he said.

The options that will be considered include increasing the amount of funds that the state contributes to the plan, and having employees increase their contributions.

The KPERS staff also will look at whether future employees’ benefits need to be changed.

The sooner a proposal comes forward, the better, because it will cost money and be part of the expected budget battle, said state Rep. Geraldine Flaharty, D-Wichita, who is a member of the pension committee.

“We are going to have a tremendous budget fight in the next session,” Flaharty said. “We are going to have to pay our bills some way.”

Comments

Godot 5 years, 8 months ago

The math is off. The fund lost 19% in investment earnings, but the unfunded liability increased by over 48%? What happened to cause that? Mr. Rothschild, will you please investigate further?

Bruce Bertsch 5 years, 8 months ago

Godot...The returns were down 19%, the unfunded future needs would increase as workers near retirement age and more workers are added. The two are not tied together, and are to some extent inversely proportional.

jmadison 5 years, 8 months ago

The dirty little secret is that municipal and state retirement benefits are woefully underfunded to provide the benefits that these plans have promised their workers. One need look only at California to see the results of overpromising by the municipalities. Add the pension funding shortfall to the fiscal mismanagement sins committed by our political class.

yankeevet 5 years, 8 months ago

I wish they would give the folks who are in KPERS the option too not have too put money in a losing fund such as this.

KU_cynic 5 years, 8 months ago

One key question is how does KPERS estimate its pension liabilities? Private sector firms are required to use the present value method, which calculates the present value of actuarial expected benefits versus the present value of current and expected future assets. The key to the PV calculations is the rate of return, and in current market conditions expected rates of returns -- based on Treasury rates, for instance -- are down, pushing PV of future obligations up.

This a scandal in which many successive governors and legislatures are culpable of outright evasion of responsibility. Either future taxes will have to increase materially or current and future employees are going to get promises about benefits broken or unilaterally downgraded.

Stephen Roberts 5 years, 8 months ago

Part of the problem is that KPERS used to not include schools districts pensions. The school districts pensions were underfunded and KPERS was not. When they combined, the total KPERS become underfunded.

Thanks a lot school districts.

Godot 5 years, 8 months ago

Very enlightening comments, all. Thank you.

Douglas Garst 5 years, 8 months ago

The finanical planner of the KPERS must be one of those that subscribe to the theory "don't get out of the market when it goes down as the lossess will be made up when the market goes up". Anyone that follows this theory will lose their shirts.

roger_o_thornhill 5 years, 8 months ago

Great! I always knew I'd have to work until the day I die. I just wish they'd quit STEALING my money and let me keep it. Employer contributions don't mean a whole lot if you get NOTHING in the end. They could offer to put $10,000 per paycheck in there since all that has to happen when it comes time to pay out is someone says, "Sorry, there ain't no more money left for you". Saving for retirement is a flawed concept anyways. I saw my dad scrimp and save just so he could die 11 months later--some retirement.

Steve Jacob 5 years, 8 months ago

Well, the market did get back guessing 40% from the March bottom and is about level for 2009.

weeslicket 5 years, 8 months ago

"Thanks a lot school districts." kpers stands for kansas PUBLIC EMPLOYEE retirement system. public employees does include public school employees; as well as firemen, police, and all other public employees (both state and municipal).

kpers is mostly in trouble because: 1. our elected leaders have not met their due diligence in maintaining this fund in terms of routine investments. 2. our elected leaders have not met their due diligence in maintaining this fund in terms of ongoing management (e.g., investment strategies) of these routine investments.

we can complain about this governor or that one; but ultimately, this responsibility (now, and as always) falls upon the laps of our duly elected state legislators.
and for quite some time at that.

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