Each legislative session, we provide Shawnee Mission area legislators the opportunity to share their thoughts about what’s happening in the state capitol. Rep. Jan Kessinger, Rep. Tom Cox and Sen. Dinah Sykes are scheduled to send updates this week. Rep. Cox’s column is below.
Governor Kelly proposed to limit the financial burden the Kansas Public Employees Retirement System, or KPERS, places on the state by reamortizing its debt. The roughly $19 billion system oversees the pensions of more than 311,000 workers and retirees.
The plan, similar to a proposal the Legislature voted down in 2019, would refinance the system’s debt by pushing out payments over a longer period. That would reduce the state’s contributions in the first few years but cost more in the long run.
KPERS is in a fairly strong position at roughly 69% funded, leaving an “unfunded liability” of 31%. While that might not sound strong, it puts us in the best position it as been in decades. The total liability is calculated off what is owed to all members of the pension, meaning if every single person cashed in 100% of their benefits the state could pay 69% of what is owed. But that includes every current employee paying into the system, regardless if they can retire. For example, I am in KPERS but cannot draw on it until 26 years from now, but the calculation factors in what will be owed to me then.
Reamortizing is like refinancing your mortgage. Currently, our pension system is estimated to be 100% funded by 2035. The Governor’s proposal would refinance the fund extending the time until we fully fund the pension to 2045. This would lower the states contribution to the pension by roughly $223 million, freeing that money up in the budget for other recommendations the Governor made (increases to higher education, Dept of Children and Families, etc).
I oppose the effort to reamortize for three reasons:
- 1) The KPERS board has the authority to reamortize whenever they feel it makes sense. They have a fiduciary duty to the fund, meaning if they knowingly make irresponsible choices they can suffer legal penalties. Legislators are not bound by fiduciary obligation and thus I believe we should NEVER forcibly reamortize against the KPERS board recommendation.
- 2) The board has recommended against it, saying our unfunded liability needs to be lower first and is likely to consider it in next few years.
- 3) We should not set the precedent of the Legislature reamortizing because every time they need money, this will be the “easy cash” and that is how you end up bankrupting a pension. Closing the bank of KDOT and opening the bank of KPERS.
Now, while I disagree with Gov. Kelly’s request, I don’t think she should be demonized over it either. Historically, the legislature has missed many KPERS payments, which she calls out in her request. Our KPERS payments in a few years jump higher to the tune of $200+ million more a year in payments that our budget cannot afford. She is proposing this as something she feels will create more long-term sustainability for both the budget and KPERS planning. She is just 2-5 years too early on the request and it should be to KPERS, not to the legislature. We should keep payments on schedule and revisit the issue once we are comfortable in the 70-75% funded range and allow the KPERS Board to make a decision.