Posted on Fri, Oct. 16, 2009

University of Kansas economist Art Hall certainly got everybody's attention with the recent report he co-wrote declaring that the Kansas Public Employees Retirement System "is bankrupt under current operating assumptions." But he also needlessly shook up retirees and their surviving spouses statewide, making it sound as if KPERS was dead broke and beneficiaries were about to be cut off when in fact KPERS has more than $11 billion in assets.

Hall told the House Appropriations Committee this week that he'd learned his lesson about the B-word and wouldn't use it again: "I'm terribly sorry if I frightened any widow or other elderly person, but technically, we are absolutely correct," Hall said.

State Rep. Rep. Bill Feuerborn, D-Garnett, responded: "Maybe you should have gone to a nursing home and ran that word by them."

The report from the KU School of Business' Center for Applied Economics has a valid point: KPERS has taken a beating in the recession, seeing its unfunded liabilities double to $10 billion. Financial problems loomed even before the economic mess, demanding prompt, foresighted action in the Legislature.

But the report also has an agenda, which is to end KPERS as we know it: "In the long run, the most effective way to eliminate unfunded liabilities is to require new employees to enroll in a defined-contribution plan," the authors wrote, citing the Kansas Board of Regents' 401(k)-style plan as a model. "As employees in the defined-contribution plan replace those retiring from the defined-benefit plan, unfunded liabilities are eliminated."

Trouble is, the economic fallout has demonstrated the ease with which a 401(k) plan's value can be eliminated, too — leaving the state off the hook but the retiree's dreams in the dust.

As Gov. Mark Parkinson wrote on his blog this week, explaining why he opposes a 401(k) switch: "First, it doesn't solve the problem for the 250,000 people that are already in our defined-benefit system. Second, 401(k)s are not all that they are built up to be. Most of my friends that have them have seen their funds cut in half over the last year and are now referring to them as their 201(k)s."

In pondering a KPERS fix, lawmakers also need to consider the source of the KU report: Hall, a former Koch Industries economist who is now executive director of the Center for Applied Economics, also has argued that good roads don't help the Kansas economy and promoted Proposition K, a likely unconstitutional piece of legislation aimed at unlinking property tax from market value. The other author, Barry Poulson, is a University of Colorado economics professor best known for trying to persuade state lawmakers around the country to tie their own budget-making hands by passing a Taxpayer Bill of Rights — an effort dubbed "a disaster looking for a place to happen" and denied a legislative vote in Kansas even in 2006, when the economy was strong.

Parkinson seemed to appreciate the KU report for underscoring KPERS' underfunding and urgency, noting the "simplest fix is to increase state payments to the fund." While making no secret of its bias, the KU report acknowledges that "everything should be on the table, including changes in benefits and increased employee-contribution rates as well as increased employer-contribution rates."

Whether one thinks it's fair to call KPERS "bankrupt," state leaders shouldn't wait until it definitely is to do something.

— For the editorial board, Rhonda Holman