Lawmakers worry KPERS may be target during revenue shortfall

? The troubled Kansas Public Employees Retirement System has started showing new signs of health in the past two years with big gains in the stock market and changes in the system requiring increased contributions from both the state and its employees.

But new concerns were raised Monday that those gains could come undone if Kansas lawmakers decide to cut back on the state’s contributions to the pension system to address a looming $715 million revenue shortfall.

Sen. Laura Kelly, D-Topeka, asked KPERS officials Monday to come up with projections about what that would do to the system’s unfunded liability.

“Those of us who have been around here long enough know that when tough times come, we have either reduced or eliminated our KPERS contributions,” Kelly said during a meeting of the Legislature’s Joint Committee on Pensions and Investments.

Last week, state budget officials released new revenue projections showing lawmakers will need to cut $279 million in spending to balance this year’s budget. And for the next fiscal year, which begins July 1, they will need to carry those cuts forward and make another $435.7 million in spending cuts.

KPERS manages the retirement benefits for nearly 82,000 retired public employees, as well as nearly 175,000 active public employees. Those include employees of state government, public school districts and municipal governments in Kansas. There are another 19,300 “inactive” members, meaning they no longer work for an employer that is part of the KPERS system but they still have money in a KPERS account that can be used for retirement.

The system currently has an unfunded actuarial liability of just under $10 billion. That’s the difference between the current value of its assets now, plus any earnings those investments would realize, minus the cost of future retirement benefits it has already accrued. Unfunded liabilities are generally projected over a 40-year period.

But Republican leaders on the panel said there is little chance of cutting back on KPERS contributions to make up for the revenue shortfalls, although they left open the possibility that the funding may have to come from money other than the state general fund.

“We need to keep those commitments,” said Sen. Jeff King, R-Independence, who chairs the panel. “I am always open to suggestions — what we’ve seen from other states; new proposals to more efficiently make those commitments we’ve made — but keeping the commitment to paying down the unfunded liability is vital.”

One measure included in the 2012 KPERS reform bill was a provision allowing the transfer of excess casino gaming revenue to be used to pay down the system’s unfunded liability.

But Conroy said Monday that although KPERS has received more than $40 million of gaming revenue, that money was used instead of general fund money to make the state’s employer contribution, not as additional money to pay down the unfunded liability earlier.

Kelly’s question came after a report by KPERS Executive Director Alan Conroy, who said the system’s unfunded liability fell below $10 billion in May of this year, while the total market value of its assets rose above $16 billion.

Conroy said much of that has been due to strong gains in the stock market the past two years. That included a 14 percent return on investments in 2012, followed by a 17.7 percent rate of return in 2013.

As of June 30, he said, the fund’s 20-year average rate of return has been 8.9 percent, which is slightly higher than fund managers assume in their long-term projections. And that included huge losses the fund suffered during the Great Recession.

Conroy also said recent reforms enacted by the Legislature have contributed to the fund’s turnaround. In 2012, lawmakers passed a bill calling for increased contributions from both employers and employees.

Because of those changes, Conroy said, KPERS is now on pace to eliminate its unfunded liability, now estimated at $9.8 billion, in calendar year 2033.