KU School of Business – THE FUNDING CRISIS IN THE KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM (PDF link):
Assuming an eight percent return on assets, Kansas-government employers would have to significantly increase contribution rates to bring the KPERS system into actuarial balance. This would be difficult for state and local employers that are experiencing a revenue shortfall.
KPERS is bankrupt under current operating assumptions. Using more realistic assumptions regarding the expected rate of return on assets, it is highly unlikely that the KPERS system will achieve actuarial balance over the appropriate time frame.
The solution to the funding crises in KPERS will require fundamental reform. Everything should be on the table, including changes in benefits and increased employee contribution rates, as well as increased employer contribution rates. The governments of Kansas should also explore a complete shift to a defined-contribution arrangement, similar to the one used by the Kansas Regents system (and most private employers).
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The government seems to have no problem arbitrarily changing the term of our contract (the various constitutions), the public at large’s, in ways inconsistent with the original terms at the slightest whim. I wonder then why these BKed states never arbitrarily change or reduce current retiree’s benefits in times of fiscal crisis.
[rq=716895,0,blog][/rq]I’m Gonna Party
A judge ruled that Vallejo, California could void union contracts. That case involved bankruptcy of the entire city, not just a pension fund, so I’m not sure how applicable it is, but it’s interesting.
You’re definitely right that the govt changes its terms for everything else all the time.
Public Pension Funds Need Improved Investment Returns
The Kansas state plan is a small part of a country-wide public pension fund deficit that is estimated to be $3 Trillion.
It is obvious that the growth in liabilities are due to: Early age 50 retirement eligibility; Pension payouts set to 60-90% ( in all states) of retirement jump-off salaries; “Gaming the pension systems” to get pre-retirees into highest paid department manager slots just before retirement; and COLA plans at 3% annual hikes that double a pensioner’s payout in just 24 years. Under these extreme pension liability growth parameters, in place across most State and Municipal plans, bankruptcy of pubic pension plans is inevitable.
Lawmakers have three key issues to deal with in order to fundamentally cure this underfunded mess. 1. Change the retirement jump-off age to 60 or higher and equate the pension to “average salary” over past 5-10 years; 2) The employee’s annual contribution must have a rational basis to benefits received….a person in private sector pays approx 7% of salary each year into Social Security up to age 66, but receives a SS benefit that is only about one-third of pension size that a public sector pensioner gets at age 50-55; and 3. The investment Codes of States need to be revised in ways that allow public pension board trustees to use higher income portfolio investments. Public funds need to invest to at least hit 7% hurdle rates on income.
Please goto: http://www.PensionFundRescue.com to read Posts about Increasing Pension Fund Returns and Download the White Paper: “Underfunded Public Funds…It Can Stop Here!”