The Pew Center on the States
Funding Report

The Pew Center on the States released a new report that focuses on the issue of underfunding in state pension systems across the country.

The report is generally accurate and lays out the reasons why many state pension systems, including Kansas, are underfunded.

While the report is not a true “apples to apples” comparison between the states, it does highlight the seriousness of our long-term funding problem and the critical need to address it.

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 15 years.
• The recession caused large investment losses.
• Members living longer and members retiring earlier under the 85 point rule have increased liabilities.

How Are We Addressing the Problem?

The Legislature changed benefits for new employees beginning July 1, 2009. This will partially help with future liabilities, but it doesn’t address the current shortfall.

The Legislature and the Governor are ultimately responsible for benefits and funding. Over the last year, we have helped the Legislature's Joint Committee on Pensions, Investments and Benefits to develop options to ensure the financial health of the System.

Types of options the Joint Committee is considering:

• Increasing employer contributions
• Increasing employee contributions
• Changing the statutory multiplier for future service
• Issuing pension obligation bonds
• Creating a new mandatory 401(k)- like plan for future employees

The Joint Committee will meet in the next few weeks to finalize recommended legislation for consideration this year.

Member Benefits

Retirees need to remember that their benefits are safe and dependable, even with the long-term funding problem. We have assets to pay benefits for decades.

Financial markets have stabilized and KPERS’ investment returns are rebounding. Preliminary numbers show KPERS’ portfolio earned 17.3 percent for the first half of fiscal year 2010 (July 1, 2009 to December 31, 2009). We cannot invest our way out of the funding shortfall, but strong returns will help.

Key Statistics