October 1, 2018 Newsletter
This regular newsletter keeps you in touch with news and developments in the Kansas legislature. In this and all newsletters, I shall be reporting decisions and discussions taking place in the legislature that impact my constituents, and all Kansans. As your Kansas Senator, I encourage you to reach out to me and share your concerns and questions. You can reach me at Jim.Denning@Senate.KS.Gov or call my office at 785-296-2497.
KPERS Update
Legislative actions have made the program financially sound

The official name for the states retirement plan is Kansas Public Employees Retirement System. Everyone knows it simply as KPERS. KPERS consists of 3 major tiers. Tiers 1 and 2 are traditional defined benefit plans. Tier 3, effective for new hires after January 1, 2015 is a modified defined benefit plan with a 401(k) twist.
 
Kansas like most states historically underfunded its defined benefit plans while at same time increasing benefits.  Not financially prudent or sustainable. This all changed in 2011 under Governor Brownback.  Since 2011, the legislature has never wavered on the goal of finally getting KPERS on solid financial ground.

 
The graphic below provides a good overview of KPERS.


KPERS annual funding has been steadily increasing since 2010 to catch up on all the past years of it being underfunded.


Funded Ratio

The ratio of a plan's assets to its liabilities is known as its funded ratio. KPERS funded ratio is presented below.



As you can see, KPERS funding ratio continues to improve. Especially when you go back to 1971. In 1971 the states K-12 schools pension plan was taken over by the state. In 1971 the funding ratio was only 29%, which basically meant the plan had financially collapsed. If the state continues to fund KPERS as planned the funding ratio will be 70% at the end of 2018. KPERS has never been that financially sound. The rule of thumb for funding ratios of defined benefit plans are as follows.
  • < 60%              In danger of failing/Collapsing
  • 61-79%            Needs financial monitoring and attention to improve
  • > 80%              Good operating zone
KPERS is on track in fiscal year 2021 to receive a $700 million-dollar payment. When that occurs, it will be the first time in 24 years that KPERS made the actuarial calculated payment. An important milestone. In addition, KPERS is scheduled to reach 80% funded ratio in 2027.   Another important milestone in achieving solid financial footing.
Unfunded Actuarial Liability

An unfunded actuarial accrued liability is the result of not paying enough into the plans to cover the future benefits promised. This occurred in many states and Kansas was no exception. Kansas really started under-funding KPERS back in 1993. 1993 legislation made major enhancements to benefits for active and retired KPERS members and then implemented a cap on annual increases in employer contributions. Made no sense financially and we have been digging out ever since.
 
Great progress has been made in reducing the KPERS unfunded liability.   As the graph below shows KPERS underfunded liability has been reduced to $8.9 Billion from $10.25 Billion.
               


We are approaching the funding cycle similar to the last 15 years of a 30-year mortgage. The first 15 years most of the payment goes to interest, with the last 15 years most of the payment going to the principal.
 
A lot of progress has been made in shoring up KPERS. Directionally, KPERS is on solid ground to make actuarial calculated payments in 2021, achieve an 80% funded rate by 2027, and extinguish the unfunded actuarial liability by 2033, possibly sooner. KPERS investment portfolio is well managed having earned 8.2% return over the last 25 years. KPRS is approaching $20 Billion is assets.

Many legislators work hard to continue to improve and protect KPERS. Two legislators in particular come to mind. House Representative Steven Johnson worked hard to implement the Cash Balance Tier and keep needed funding going into the plan. Senator Rick Billinger is also dedicated to the long-term success of KPERS. Senator Billinger serves a Vice Chairman of the Senate budget committee. Through both Senator Billinger's and Representative Johnson's leadership KPERS funding and financial strength is at an all-time high.
Capitol Office
300 S. W. 10th Street, Room 330-E
Topeka, KS 66612
785.296.2497
jim.denning@senate.ks.gov
Overland Park
8416 W. 115th Street
Overland Park, KS 66210
913.345.9416


Paid for by Jim Denning for Kansas Senate - Kathy Vance, Treasurer
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