Editorials

Don't delay in closing KPERS gap

The Kansas Public Employees Retirement System isn't facing an immediate crisis. But the longer the state delays in dealing with KPERS' long-term funding shortfall, the worse the problem will become and the more difficult the solution.

A new report by the Pew Center on the States ranked Kansas next to last in the country in funding its public pension. Kansas' pension liability is only 59 percent funded, according to the report, and its unfunded liability over the next 25 years is estimated at $8.3 billion.

That liability has been growing sharply in recent years. In 2000, the state had 88 percent of its obligation funded — not great but much better than 59 percent.

The two main causes of the shortfall are simple: The state hasn't funded KPERS adequately, and the 2008 stock market crash cost the plan several billion dollars.

A big part of the problem dates back to the 1990s, when the Legislature increased KPERS benefits. Instead of increasing its funding contributions to pay for these benefits, the state relied on stock market gains and some actuarial changes that pushed its liability problems further into the future.

The stock market declines from the technology bubble and the recession early last decade caused the liability gap to widen. Lawmakers took some actions to reduce that gap, including increasing the state's contribution rate and authorizing the state to borrow $500 million to contribute to KPERS.

But then the stock market collapse of 2008 hammered KPERS, as it did nearly all pension plans. On June 30, 2007, KPERS had fund value of about $14.1 billion. By June 30, 2009, the value was $10.2 billion (and had been much lower earlier that year).

At the same time, the state faced its own financial crisis and struggled to fund KPERS. Last year, the state contributed only 68 percent of what the actuary recommended.

Some of these problems are bad timing and a global economic downturn beyond anyone's control. But ultimately, the fault lies with the Legislature for not responsibly balancing liabilities with assets.

In contrast, as of 2008, the city of Wichita had 101.8 percent of its pension liability funded for its non-fire, non-police employees, and 95 percent of its fire and police pension liability. And it is increasing its contribution for 2010 to offset its stock market loses.

To its credit, the Joint Committee on Pensions, Investments and Benefits agreed last week to introduce a bill to increase state and employee contributions. That's a difficult but necessary step.

The state may also need to make additional reforms to limit future liabilities for new employees, such as reducing plan benefits or possibly switching to a 401(k)-like plan.

Climbing out of this hole will be a struggle. But the sooner the state starts, the better. At the very least, it needs to stop digging the hole even deeper.

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