Kansas Lawmakers Close Pension Funding Gap

May 9, 2003 (PLANSPONSOR.com) - In a lawmaking session that wrapped up this week, the state of Kansas legislature took steps to narrow the $1.5-billion unfunded liability of its Kansas Public Employees Retirement System (KPERS).

Not only did the legislature green light a plan to allow the state to issue up to $500 million in bonds for the pension funds, lawmakers also set up a new schedule for the state’s annual payments to the fund that increase each year between 2006 and 2008, according to a Topeka Capital Journal news report.

With annual increases currently capped at 0.2%, payments would rise under the new legislation to 0.4 % in fiscal 2006, 0.5% in 2007, and 0.6% for 2008 and thereafter. The state is putting $179 million into the pension fund in the current fiscal year, but KPERS officials say $280 million is needed each year to reach long-term solvency.

In the bond issue, the bonds would be paid off over two or three decades using investment income. Critics argued borrowing money to invest in the stock market was a risky strategy, so as a compromise, supporters agreed to $500 million in bonds rather than the initially proposed $750 million.

Also, a group of about 15,000 state workers who retired before July 1, 1987, also will be guaranteed their “13th check,” a special bonus paid in lieu of cost of living adjustments to their retirement benefits. The extra check is tied to investment performance. This year, the KPERS fund didn’t perform well enough to pay for the check. But lawmakers passed a bill that will guarantee the extra check until all group members die. Critics said doing so would widen the unfunded liability.

Despite the good news for retirees, the state was unable this year to provide a cost of living adjustment to KPERS benefits, which haven’t been increased since 1998.