When Governor Brownback had trouble balancing his budget's he floated the idea of re amortizing KPERS early as well. We studied the proposal, got a lot of negative feedback from KPERS Board, retirees and teachers, and quickly determined it was not sound fiscal policy. We dropped the proposal like a hot potato.
There has been some confusion about re amortization and "layering". Layering does not change the actuarial calculated funding ratio or increase the unfunded liability. Moderate use of layering is viewed positively by the KPERS Board.
When Governor Brownback floated the idea in 2017 Senator Kelly, now Governor Kelly, was strongly opposed. "Sen. Laura Kelly of Topeka, the committee's ranking Democrat, said the governor's plan would unravel all the work done to ensure the financial stability of KPERS. She criticized the governor for short term thinking."
(Wichita Eagle, January 12, 2017)
The KPERS board unanimously voted NO on early re amortization and sent Governor Kelly a letter on January 22, 2019 letting her know they are unwilling to re amortize early. Having learned this the democrats have introduced
to have the legislature force the KPERS board to re amortize early. There has been little support in the legislature to force the KPERS board to re amortize early.
As the graphic below demonstrates, re amortizing KPERS early will have an additional cost to the taxpayers of $7.4 billion dollars.
Unfunded liability in $ Billions. Blue is the current KPERS plan to pay off the unfunded liability. The Orange is Governor Kelly's plan to re-amortize and adds $7.4 billion in extra expense to the plan. Blue is good, orange is bad.
The legislature has made great progress in shoring up the financial strength of KPERS. Staying the course and making the scheduled FY-20 payment will result in making the actuarial required contribution payment for the first time in 25 years. Making this payment sets the course for all future payments to be at the actuarial rate.
Making the full FY-20 payment is important and historic. The actuarial rate is met, the funded ratio could increase to 70%, another milestone accomplishment, and future payments will only incrementally increase while significantly reducing the unfunded liability on an annual basis. The funding period we are in is like the last 10 years of a 30-year mortgage where the majority of the payment goes towards reducing principle rather than just paying interest. Governor Kelly's proposal would take us back to just paying interest.
Below is a good link about KPERS thoughts on early re-amortization