KPERS in Deep Trouble

While questions about curriculum dominate the debate over education–when they aren’t overshadowed by lawsuits about state aid to schools–there’s a problem threatening the financial health of Kansas. As the LJW says, “The Kansas Public Employees Retirement System needs large infusions of cash.”

How big is KPERS? Big. “It has assets of $12.2 billion, which it invests. That amount is more than state government’s annual spending budget. KPERS has 250,000 active, inactive and retired members, who represent nearly 1 in 10 Kansans.”

Like government pension funds around the country , KPERS faced unfunded liabilities: promised benefits that, using current standards of accounting, it is unable to pay. Usually unfunded liabilities come about when politicians try to pacify two competing groups: public employee unions, and taxpayers. They promise outsized benefits to please state workers, but minimize government contributions to please taxpayers–or a special interest group that might benefit from the cash that might have gone to the pension.

The unfunded actuarial liability grew 10 percent from just 2004 to 2005. In 2005, it stood at $5.1 billion. That’s money that’s going to come either out of the wallets of taxpayers or from the retirement checks of state workers.

Why is this a concern for the Kansas Education blog? Because $3.5 billion of that unfunded liability is due to the school system. The gap between what is put in and what should be put in, by actuarial standards, is $110 million per year for KPERS; $100 million of that is for school employees.

To quote again from the LJW: “The school system came into KPERS with no assets,” said Glenn Deck, executive director of KPERS. “And the contributions have not been at the proper rate for a number of years.”
Clearly, what is needed across the country–and what some states have moved to–is a defined contribution system, much like a 401k. It’s going to be a hard sell, but the move is good for taxpayers and for many government employees, who gain the ability to say how their funds will be invested, and how much will be invested.

The KNEA, as you might expect, says “don’t blame us. Send us more money.” The union’s legislative director says “The argument shouldn’t be ‘Those teachers are going to drive us bankrupt. Instead it’s the failure of Legislature in the past to take care of the system appropriately.”

The LWJ world notes that the state has already floated $500 million in pension obligation funds–in effect, taking out long-term loans to deal with poor policy choices of the past.

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