KPERS commission a failure

December 21, 2011


Gov. Brownback appointed me to be a member of the Kansas Public Employees Retirement System Study Commission, set up to make recommendations on the financial stability of KPERS. Our meetings are completed. What did we accomplish? Nothing positive. Raised costs. Increased complexity. Kicked the can farther down the road. In other words, political gamesmanship won, and the taxpayers and state employees in Kansas lost.

KPERS is $9 billion in debt, a debt owed by taxpayers. To put that into perspective, the Kansas budget is $5.5 billion. And what is this debt for? To fund the retirement benefit for government employees.

The law for funding KPERS (HB 2194) obligates the state to pay, on average, over $900 million per year. This year, taxpayers will contribute $367 million, so taxpayers need to almost triple their contributions to the employees’ retirement plan. The Kansas Association of School Boards says we are already taking money from the classroom to fund this benefit. But nowhere near as much as we will in the future.

KPERS is in bad shape for two big reasons. First, the Legislature chose to underfund the plan for many years, spending the money on other things.

Second, state employees are allowed to retire with full pensions as early as age 52. Their pensions pay lifetime benefits, potentially 30 years or more. Two different actuaries told us early retirement was the single biggest cost to the pension system. Did we do anything about this? The only proposal addressing it was defeated.

Gov. Brownback’s appointees probably made 75 percent of the recommendations. Most were either not acted on, or were defeated. For example, one proposal would have changed the vesting requirement from 5 years back to 10 years, where it was until 2 years ago. When it changed, KPERS was already significantly in debt. Allowing earlier vesting increased the debt. Who did this change benefit? Legislators who might not serve 10 years. And employees who work for the state, and then take their career a different direction. Forty-five percent of employees leave before the 10-year point.

So that change only benefitted short-term employees, who are now eligible to receive monthly retirement benefits for the rest of their lives. The actuary said this change would save $37 million. KPERS said this was “not significant.” In my world, $37 million is very significant.

This proposal was defeated.

So I am recommending to Gov. Brownback that he propose an immediate across-the-board 25 percent state income tax increase to pay the shortfall in employees’ retirement plans. The KPERS Study Commission decided against cutting the spending. I refuse to recommend taking more money from our children’s classrooms to pay this bill. The only remaining option is a tax increase.

I’m sure KNEA and KOSE and the other employee unions will aggressively support this proposal, since they have claimed loudly (wrongly, but loudly!) that the only reason the employees’ pension plan is underfunded is because the Legislature chose not to fully fund it. And since those same unions also claimed loudly (also wrongly, but just as loudly!) that if we just follow HB 2194, the plan will become fully funded in 22 years. The 25 percent across-the-board tax increase is the amount of money needed to fund the plan per HB2194.

This doesn’t have to be a union vs. taxpayer issue. Between the union and the Kansas Legislature, no one has the guts to do what is needed to fix this. But there is a middle ground. The current plan is unsustainable. The only thing that would save the current plan is if the stock market goes into a ’90s-type bull market. Anything short of that, and the plan gets worse.

Through 12-14-2011, the stock market is up 1.3 percent. Since KPERS is based upon an 8 percent assumed rate of return, earning 1.3 percent this year is equivalent to losing 6.7 percent.

If the unions don’t agree to modifying the benefits, eventually the plan will collapse under the funding requirements. $900 million a year? Wow! Taxpayers who have no pensions are objecting to paying higher taxes for someone else to have a pension.

Now that this commitment is over, I need to get back to my real job. As I understand it from the unions, this commission failed because the financial planners on the commission were trying to benefit personally from the outcome. So I need to get my three-planner office geared up to handle 280,000 KPERS members as new clients. I might even have to work some overtime!

Richard Stumpf is a certified financial planner in Wichita.


thirdplanet 6 years, 3 months ago

Wow, seems like no government can keep itself funded now a days. Our own government, Social Security, the post office, Europe, whats their deal. Is it just natural for government to be fiscally irresponsible.

I guess that's why we need more government intrusions in our lives, like healthcare. Obama sure did a lot of good to it during his three years of non-presidency.

Kendall Simmons 6 years, 3 months ago

Let's see...let's see what horrible health care changes have been implemented under "Obamacare" so far:

Kids can't be turned down for pre-existing conditions. Yeah, that's a really dreadful one, as is allowing adults with pre-existing conditions to buy affordable insurance now.

The donut hole for senior is being closed. Boo. Coverage for young adults. How stupid is that? No more lifetime maximum payouts? We're just greedy Americans.

Plus small businesses get tax credits for providing insurance. How dare we!! And insurance companies can no longer cancel your health insurance because you get sick. The horror!

I continue to be amazed at how many people are angry about those changes. Oh, wait. They aren't angry about those changes. You know...the changes that have actually been implemented. Nooooo. They're angry about the changes that haven't been implemented yet...and aren't supposed to be implemented for several more years...and may never be implemented. But, hey...why let a little something like the facts get in the way of "righteous" indignation, right?

tomatogrower 6 years, 3 months ago

You forgot about all the young people in their 20's who are still on their family's health plan. That's pretty bad. Everybody knows they don't get sick, because they are young. Oh wait. The insurance company is getting extra money for kids who seldom get sick. Shouldn't that make them happy?

kochmoney 6 years, 3 months ago

I'm sure you'll also complain when you get your mandated refund if 80% (or 85% for large groups) of that money wasn't spent on actual care.

usnsnp 6 years, 3 months ago

All I see is blaming the unions or the state workers. I have lived here in kansas for 30 years, in that time I have not seen state workers going on strike. So if the benifits are too generous it is the fault of the Legislature who have been controled by the Republicans, if the retirement fund has been underfunded over a long period of time, it is the fault of the Legislature who have been controled by the Republicans.

Kendall Simmons 6 years, 3 months ago

No kidding. My thought, while reading this, was "what a snotty man". He didn't offer any serious suggestions...just blamed "unions". Of course, of the 13-member panel, only 4 people could, by any stretch of the imagination, be said to represent unions (like the state legislator who is also a retired teacher) so I guess we're supposed to assume that the other 9 members (legislators, lawyers and businessmen) were all gullible and powerless.

And, while I agree that the vestment period ought to go back to 10 years, whining about 4 tenths of a percent of the $9 billion shortfall being deemed "insignificant" seemed pretty silly, as did not providing us with any of his suggestions, so that we could see what he presented to the panel. (Or perhaps his 25% across-the-board state income tax increase was his only serious proposal.)

He could have used his time here to present solid, responsible ideas. Instead he chose to be snotty. Makes me wonder if that was how he behaved during study sessions. That would help explain why so little got done.

kochmoney 6 years, 3 months ago

Agreed. The vesting could return to 10 years, and that would be a really good idea if the point is to encourage long-term workers. I also thought the most egregious provisions (he claims age 52 with full benefits) for early retirement were already removed from KPERS with the last fix they enacted, so the problem is just funding the early retirees already in the system, which is something they'll have to do with any fix they enact shy of breaking existing contracts.

Let me go check... Yup. I'm correct. So either he wasn't paying attention, or he's being deliberately deceptive. Traits I find very attractive in my financial planners.

Here's what I found:

KPERS Tier 2

Retiring With Full Benefits

Age 65 with five years of service credit Age 60 with 30 years of service credit

Now maybe he's talking about firefighters and police. I didn't check to see if they've got an earlier eligibility for full retirement, but I'm not going to begrudge someone who risks their lives every day a little early retirement. It's still a deceptive way to frame the argument, imo.

mloburgio 6 years, 3 months ago

Legislators' KPERS calculation a 'perk'

Comparing pensions

A legislator retiring with an annualized pay of $85,820.52, and with 10 years' service, would have an annual KPERS benefit of $15,018.60, for a monthly benefit of $1,251.55, according to KPERS. If the retiring legislator had 20 years' service, the annual benefit would be $30,037.20, and monthly, $2,503.10.

The News asked some KPERS retirees about their pension benefits. Their answers varied widely.

A state employee who was a supervisor for juveniles on probation retired after 34 years with an annual benefit of about $25,000. A municipal wastewater treatment plant superintendent, with 24 years' service, estimated the earned benefit at $2,300 to $2,400 monthly.

A state social services worker in a supervisory role retired in 1995 after 15 years and draws a monthly KPERS benefit of $524. That is equal to the monthly benefit for a county-level commercial appraiser who retired at 65, vested at nine years with KPERS.

'Insult' http://hutchnews.com/Todaystop/kpers-and-leg-2--2

P Allen Macfarlane 6 years, 3 months ago

My, my! None of the usual right-wing, not-tax, no-government nuts have chimed in on this one.

james bush 6 years, 3 months ago

Doesn't anyone understand? Everyone should work for the government and then we could just keep taxing and spending and no one would have anything to complain about.

Alceste 6 years, 3 months ago

http://finben.com is a direct link to Richard Stumpf's operation. Question: Would you buy a used car from this fellow, let alone let him "manage" your money?

These "financial planners". Gotta love 'em. Them and their "soft income": They strive to get one to invest in "stuff" that quietly pays them each and every month. Pimpdom at it's finest.

Thank you Richard Stumpf for your "community service". Be sure to frame that letter you get from Brownback and proudly display it for all to see.

hahahahahahahhahahaahah....funny stuff from this fellow Richard Stumpf !!

deec 6 years, 3 months ago

I wonder how much he earns from managing 401K retirement funds? That wouldn't be a conflict of interest or anything, forcing people to have 401K's. End sarcasm.

kochmoney 6 years, 3 months ago

It's all the fault of unions, I tell you.

kochmoney 6 years, 3 months ago

It's buried in the nested replies, but it bears repeating. From his editorial "Second, state employees are allowed to retire with full pensions as early as age 52. Their pensions pay lifetime benefits, potentially 30 years or more. Two different actuaries told us early retirement was the single biggest cost to the pension system. Did we do anything about this? The only proposal addressing it was defeated."

It was fixed in 2009. You can't address the early retirement of employees currently in the system without breaking their contracts or encouraging them to retire before they can receive early benefits. The current 401k shift will cost taxpayers a huge amount of money, because it still has to fund the early retirees who entered the system under Tier 1.

KPERS Tier 2

Retiring With Full Benefits

Age 65 with five years of service credit Age 60 with 30 years of service credit

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