April 18, 2014

Study finds KPERS is unsustainable pension

Despite legislative efforts to reform the Kansas Public Employees Retirement System (KPERS) in 2011, the plan’s funding status remains seriously low.   A new paper from Kansas Policy Institute scholar Barry Poulson, Ph.D., makes clear that the reforms undertaken thus far were not enough to address the structural deficiencies in KPERS.  In fact, new Government Accounting Standards Board (GASB) standards will make the current deficiencies much worse.
While a funding ratio (value of assets in the plan divided by a measure of the pension obligation) of 80 percent is generally considered a barometer of a pension system’s health, KPERS has a 59 percent funded ratio as of the most recent KPERS year-end report, and that will decrease to 46.1 percent under the new GASB standards.  KPI also released a database of the 2012 KPERS distributions, which highlight individual payments made to KPERS beneficiaries, via KansasOpenGov.Org, a transparency portal publishing official government data.
“The evidence underscores the fact that [KPERS] is not on a sustainable path. Recent studies reveal that Kansas has one of the most under-funded pension plans in the nation,” writes Dr. Poulson, the paper’s author, a retired professor from the University of Colorado – Boulder, and past president of the North American Economics and Finance Association.
The new GASB standards will take effect in 2013 and 2014 and, according to GASB, will “require governments providing defined benefit pensions to recognize their long-term obligations for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits.”
Dave Trabert, president of Kansas Policy Institute said, “At the end of 2011, our official KPERS debt amounted to $3,285 per Kansan. But more realistic investment return assumptions could easily double that amount.  In very real terms, this clarifies the magnitude of the problem and its impact on individual Kansans.  KPERS’ own benefit payment records indicate that some government employees will likely collect multi-million dollar pension benefits if they live a normal lifespan. Public servants deserve retirement security but we shouldn’t be handing out an annual retirement checks that are far greater than what most private sector taxpayers receive.”
Trabert continued, “The new, more realistic accounting standards underscore the need to go further in reforming KPERS. Public sector retirement benefits need to be brought in line with those in the private sector and taxpayers should be let off the hook of pension debt by moving employees to a 401(k)-style pension plan. Incidentally, 401(k)-style plans have been the standard in the private sector for decades.  They are available to Kansas political appointees and Regents’ professors, can provide a better final benefit and give more flexibility to an increasingly mobile workforce.”
“Preventing Bankruptcy in the Kansas Public Employees Retirement System” outlines six steps that should be taken to stop making state pension debt worse and to secure the benefits of retirees in the future;
• Welcome the new GASB standards as a way to increase transparency and accountability;
• Implement a 401(k)-style system that increases public servant flexibility and taxpayer peace of mind;
• Align public sector retirement benefits with those in the private sector;
• Be prepared for any legal challenges – recent case law suggests this is the case;
• Take steps now to avoid a bankruptcy that puts already-earned benefits at risk;
• Follow the example of other states by bringing taxpayers, government officials, and public sector workers together to address the problem.
Trabert concluded, “Our leaders in Topeka should be commended for the work they’ve done thus far in working to fix KPERS, but more work needs to be done. Without continued 401(k)-style reform Kansas taxpayers will remain on the hook for higher taxes to finance pension debt and beneficiaries will remain at the mercy of an unsustainable system.”

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