Gov. Sam Brownback appointed me to the Kansas Public Employees Retirement System study commission, which was supposed to make recommendations on the financial stability of KPERS. Our meetings are completed. What did we accomplish?
We raised costs, increased complexity and kicked the can down the road. Politics won, and taxpayers and state employees lost.
KPERS has a nearly $9 billion debt, owed by taxpayers. To put that into perspective, the Kansas budget is $5.5 billion. And what is this debt for? To fund the retirement benefit for government employees.
The law for funding KPERS (HB 2194) obligates the state to pay, on average, more than $900 million per year. This fiscal year, taxpayers will contribute $367 million, so taxpayers will need to almost triple their contributions.
KPERS is in bad shape for two big reasons. First, the Legislature underfunded the plan for many years, spending the money on other things. Second, state employees are allowed to retire with full pensions at age 52.
The pensions pay lifetime benefits, potentially 30 years or more. Two actuaries told us early retirement was the single biggest cost to the pension system. Did we do anything about this? The only proposal was defeated.
Brownback’s appointees probably made 75 percent of the recommendations. Most were either not acted on or were defeated.
One proposal reversed a 2-year-old change, reducing the vesting period from 10 years to five years. KPERS was already significantly in debt. Earlier vesting increased it. Who benefited? Legislators who don’t serve 10 years, and the 45 percent of government employees who leave before the 10-year point. They now receive retirement benefits for the rest of their lives.
The actuary said this proposed change would save $37 million. KPERS said this was “not significant.” In my world, $37 million is very significant. This proposal was defeated.
I am recommending that Brownback propose a 25 percent tax increase to fund employees’ retirement plans. The commission wouldn’t cut spending. I refuse to recommend taking more money from classrooms to pay this bill. The only remaining option is a tax increase.
I’m sure the public-employee unions will aggressively support this. They claimed loudly (wrongly, but loudly) that KPERS is underfunded because the Legislature didn’t fully fund it. And they also claimed loudly (also wrongly) that if we just follow HB 2194, the plan is fully funded in 22 years. The 25 percent tax increase is the amount needed to fund the plan per HB 2194.
Between the unions and the Legislature, no one has the guts to fix this. The current plan is unsustainable. The only thing that would save the current plan is if the stock market goes into a 1990s-type bull market. Anything short of that, and the plan gets worse.
So far this year, the stock market is up about 1.3 percent. Since KPERS is based upon an 8 percent assumed rate of return, earning 1.3 percent this year is equivalent to losing 6.7 percent.
If the unions don’t agree to modify benefits, the plan will collapse under the funding requirements. Taxpayers who have no pensions will object to paying higher taxes for someone else to have a pension.
Now that this commitment is over, I need to get back to my real job. As I understand it from the unions, this commission failed because the financial planners on the commission were trying to benefit personally from the outcome. So I need to get my three-planner office geared up to handle 280,000 KPERS members as new clients. I might even have to work some overtime.