New Valuation Shows Modest
Improvement, but Action for
Long-Term Funding Still Needed

Each year, KPERS’ valuation provides a snapshot of the system’s financial health. KPERS released the newest valuation July 2010, with data as of Dec 31, 2009.

According to the valuation, KPERS’ unfunded actuarial liability decreased by $600 million. KPERS’ funded ratio is 64 percent, up somewhat from 59 percent the year before. The funded ratio is the ratio of actuarial assets to liabilities. For public pension plans like KPERS, funding over 80 percent and rising is good. Funding below 60 percent is poor and needs prompt attention.

Even with this year’s modest short-term improvement in funded ratio, the fundamental, long-term shortfall remains and will continue to grow.

Strong investment performance in 2009 accounts for the modest bump in funding status. However, even with a yearly 8 percent return, the unfunded liability will continue to increase in the coming years. Investment returns alone cannot fix the ongoing funding problem.

• KPERS will continue to absorb significant 2008 losses over the next three years.
• Employers are not contributing at the required rate.

Reasons for KPERS Funding Shortfall

• Benefit increases in the 1990s, funded mostly through actuarial changes that put off paying for them until later.
• State and local governments haven’t contributed at the required rate for over 15 years.
• The recession caused large investment losses.
• Members living longer and members retiring earlier under the 85 point rule have increased liabilities.

Efforts Over the Last Year

KPERS worked with the Kansas Legislature’s Joint Committee on Pensions, Investments and Benefits and other committees to develop a range of options to address the problem. Last session, the Joint Committee introduced SB 564. It would have increased employer and employee contribution rates and increased the multiplier for future service.

The House Select Committee introduced House Sub for HB 2400 that would have raised employer contributions. Both bills had hearings, but neither bill passed.
 
Next Steps
The legislature and governor are ultimately responsible for benefits and funding. Legislative action is needed.

The longer we wait to fix the problem, the more it will cost. KPERS staff, board and actuary are working with the new valuation information to continue the funding analysis. Our goal is for the board to take action on a proposed legislative agenda for the 2011 session.

As a fiduciary devoted to the best financial interest of members, we’ll continue to advocate for policies that promote the long-term financial health of the Retirement System.

Paying Current Benefits

KPERS currently has about $11.5 billion in assets and receives contributions to the fund of over $700 million, annually. Although the system has a significant funding shortfall that requires serious attention, assets, plus incoming contributions, can pay benefits for decades.

Key Statistics

11/16/10