Topeka — The recession has made the long-term funding problems for Kansas’ public pension system severe enough for a recent report to declare it “bankrupt.”
Democratic Gov. Mark Parkinson isn’t as pessimistic, and the Kansas Public Employees Retirement System says no current retirees’ benefits are in jeopardy. But they acknowledged Wednesday the state must start soon to close an $8.3 billion shortfall expected between KPERS income and expenses over the next 25 years.
The report, released last week by the Center for Applied Economics at Kansas University, suggested the state should move toward 401(k)-style plans for teachers and state and local government workers. It’s ammunition for Republican legislators who’ve wanted to get away from plans with benefits based on salary and years of service.
“KPERS is bankrupt under current operating assumptions,” the report said.
The House Appropriations Committee expects to discuss KPERS during an Oct. 12-13 meeting. The KPERS Board of Trustees meets Oct. 15-16, and Parkinson’s administration has committed to considering proposals that don’t reduce retirees’ benefits.
“I don’t think he would go so far as to say KPERS is bankrupt,” Parkinson spokeswoman Beth Martino said. “We’re analyzing the situation and looking at all the options for fixing what appears to be a serious long-term problem.”
About $2.3 billion of the shortfall stems from investment losses last year.
But many Democrats and employee and retiree groups argue the state has never contributed enough money to KPERS to fulfill its long-term obligations. The state contributed $278 million last year.
“The employees have done nothing wrong in this,” said Dennis Phillips, a retired Topeka fire chief, now chairman of a retirees’ coalition.
State Treasurer Dennis McKinney, a Democrat and KPERS trustee, said employees probably would be willing to contribute more of their paychecks to pensions if the cost does not fall too heavily on them.
“If we all share in the pain, it’s a much more manageable problem,” McKinney said. “The first burden is on the state.”
The KU report said KPERS problems’ include methods for valuing assets that inflate their worth and projecting investment returns at an average of 8 percent a year. Glenn Deck, KPERS executive director, said both are standard for public pension systems.
But the report said a major flaw is guaranteeing benefits up front, regardless of investment earnings over time.
Arthur Hall, the center’s executive director, said it’s hard for KPERS to pin down the exact long-term cost of what it will owe in benefits. Also, he said, the current system allows state officials to promise good benefits now and let future officials worry about how to pay for them.
Supporters argue 401(k)-style plans result in higher benefits over time for employees, particularly younger ones, than the state guarantees now.
“We are in this situation because we have an antiquated retirement model for our state employees,” said House Appropriations Committee Chairman Kevin Yoder, an Overland Park Republican.
But others contend government workers sacrifice higher salaries for secure pensions, while 401(k)-style plans are riskier. Mark Desetti, a lobbyist for the Kansas National Education Association said legislators should remember that many retirees were hit hard by the recent downturn.
“These are the people who are going to end up on dog Kibble now, unless they have a major turnaround in the stock market,” Desetti said.