Wichita Eagle on KPERS misses the mark

A recent Wichita Eagle editorial by Phillip Brownlee misses understates the magnitude of the problem with Kansas Public Employee Retirement System, or KPERS, and fails to recognize problems with possible solutions. ($8.3 billion question, November 4, 2011 Wichita Eagle)

The first problem is stating the magnitude of the problem. Brownlee, like most sources, states the funding shortfall at $8.3 billion. Using that number is nothing short of fraudulent. KPERS acknowledges that there are about $600 million in market losses that aren’t included in the $8.3 billion figure because government accounting rules don’t require such reporting. Plus, this valuation relies on assumed rates of return that are higher than the private sector uses. Adjusting for these factors, and using a realistic assumed rate of return of six percent, Kansas Policy Institute says the shortfall would be $14.1 billion.

More shocking is an evaluation of state pension funds conducted by the American Enterprise Institute which uses market valuation methods. This evaluation puts the shortfall for Kansas at $21.8 billion.

Either way, the magnitude of the problem is far larger than Brownlee acknowledges.

Brownlee also writes that moving to a defined-contribution plan isn’t the solution. He says that “future contributions would be diverted to the new plan,” but these contributions are needed to prop up the current system. The teachers union and organizations that advocate for state employees have made similar claims, with the KNEA writing: “If all new employees came in under a defined contribution or 401(k) plan, their investments would be essentially personal investments and not used to contribute to benefit payments to current or future defined benefit members. This means that each person who retires will be replaced by someone who is not paying into the defined benefit system.” (emphasis added)

These admissions that the contributions of young workers are used to fund the benefits of retirees is admission of a Ponzi scheme. Instead of new members’ contributions being invested to provide for their own retirement, their contributions are needed to pay for current retirees. This is a system that guarantees being perpetually under-funded. It must be stopped.

Very troubling is Brownlee’s discussion of a proposal to borrow $5 billion to prop up KPERS. The only objection Brownlee finds is that it could be risky if the stock market falls. Yes, part of the problem with KPERS is that the stock market is down and there have been losses in recent years. Although we can’t predict when the market will fall and by how much, we know that there will be ups and downs over long periods of time, and that’s the domain of pension funds — long periods of time.

That the state might even consider borrowing $5 billion to fund KPERS is an admission that the state has been running deficits for some years, despite a requirement for a balanced budget. We are left with the realization that the legislature has committed itself to obligations that it chose not to fund. $5 billion is nearly one year’s general fund spending. It’s a lot of money in Kansas, and even this much would not close the gap in KPERS.

This deficit has not appeared in any budget. The legislature and governors have said we’ve balanced the budget. But when the liabilities the state has incurred, but not paid for, are added, we realize that we’ve not been told the truth. Mr. Brownlee’s editorial does nothing to advance this truth to Kansans.

The first thing Kansas must do is realize that the state has not shown responsibility in running a defined-benefit pension plan, and it must stop admitting new employees.


3 thoughts on “Wichita Eagle on KPERS misses the mark”

  1. KPERS problems are very serious, but we can’t expect Mr. Brownlee to understand the situation that the State of Kansas is facing when his own organization continues to struggle financially.

  2. The issue with KPERS is that past Legislatures have not funded it properly. Goverment employees in KPERS contribute either 4% or 6% if hired after July 1, 2009. Those rates are in statute and cannot be adjusted by the employee to contribute more are less. If the employee were to receive a raise, then the contribution would be increased as well. These rates are set by the Legislature, so government employees cannot be blamed for not contributing their portion of funding to KPERS.

    Past Legislatures have not done their part in properly funding KPERS. Instead, more interest has been in handing out tax exemptions. I think KPERS should change to a 401-k plan, but only for new employees. The state has a duty to fund the current system for retired workers and those already in the system. In addition, some of these conservative Republican legislators who want to reduce government spending should give up the health insurance the state provides to them, plus their participation in the current KPERS system. If not, they are nothing but a bunch of hypocrites.

  3. As a current participant in KPERS, I fell like the funds I have paid in should be used for my retirement, not to pay a current retiree. Give me my funds and let me invest them along with my other personal investments. I will be fine – and if I’m not, I’ve no one to blame but myself.

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