Kansas Lawmakers Cut Back Pension Reform Proposal

January 8, 2004 (PLANSPONSOR.com) - Kansas lawmakers significantly reduced and delayed a plan to help bail out the state's troubled public employee pension after Governor Kathleen Sebelius said the state couldn't afford the original proposal.

The Joint Committee on Pensions, Benefits and Investments still recommended the state issue $500 million in bonds, to provide an infusion of cash and boost the investment earnings of the Kansas Public Employees Retirement System (KPERS), according to a Journal-World news story.

However, the committee, at Sebelius’ request, reconsidered its proposals for paying off the bonds. By investing the funds and earning 8%, state financial experts said KPERS would reap a benefit of $4 billion over the 30-year payback of the bonds. But there is no assurance the investments would produce the 8% returns.

Under the original notion, repayment of the principal and interest on the bonds would have cost about $40 million per year and come out of the state’s general tax fund.But Sebelius’ budget director, Duane Goossen, said that because of a tight budget, those payments weren’t in the financial picture. Instead, Sebelius recommended paying off the bonds by taking the money out of the state’s contributions to the pension fund. Those contributions are scheduled to start increasing next year. Under Sebelius’ proposal, the KPERS benefit would drop from $4 billion to $1 billion, officials said.

Democrats on the pension committee defended Sebelius’ position, saying that there are too many budget priorities and not enough money to go around.”Though we desperately need to address KPERS, it is not the only desperate problem we have,” said state Representative Geraldine Flaharty, D-Wichita.

Republicans accused Sebelius, a Democrat, of improperly putting off the KPERS aid. Because of inadequate state funding and stock market losses, the fund is running a $3 billion deficit. The Republicans said paying off the bonds with money from the state’s pension contributions negated most of the benefit to KPERS. “I don’t think it’s worth the risk,” state Representative Melvin Neufeld, R-Ingalls, said.

KPERS manages $9 billion in assets for 240,000 members.