Lawmakers signal preemptive strike against refinancing of Kansas pension system
Rep. Jim Kelly proposes a recommendation Wednesday urging the 2021 Legislature not re-amortize, or refinance, the 40-year payment plan to KPERS. (Noah Taborda/Kansas Reflector)
TOPEKA — Members of a committee tasked with monitoring the Kansas Public Employees Retirement System took a preemptive stance Wednesday against refinancing the public pension system’s unfunded liability.
Rep. Jim Kelly, an Independence Republican, proposed the 2021 Legislature put off refinancing, or re-amortizing, the state’s 40-year plan to pay off debt to the KPERS fund. No members of the bipartisan committee expressed any disagreements with the recommendation.
The action comes in anticipation that Gov. Laura Kelly will again propose a bill including some form of refinancing this upcoming legislative session as she has in the previous two sessions.
“The recommendation on amortization is to suggest we not re-amortize before the 10-year mark of the plan unless the recommendation to do so comes from the KPERS board of directors,” Rep. Jim Kelly said.
In 1993, lawmakers put in place a 40-year payment plan to pay off decades of debt to KPERS. In both 2019 and 2020, Kelly suggested extending payments over another 30 years to ease the impact of ballooning yearly payment costs on the state’s projected budget deficit.
The annual payment, which was $702 million for 2020, is expected to escalate to more than $1 billion by 2033. Under Kelly’s plan, the yearly cost would have dropped below $600 million.
In both years, GOP-lawmakers balked at the idea, noting the plan would also add $4.4 billion to the overall payment plan.
The recommendation proposed during a meeting of the Joint Committee on Pensions, Investments and Benefits would put off refinancing for at least three years.
Another point of interest during the meeting was the rising number of retirement applications KPERS has received as the pandemic has dragged on.
KPERS executive director Alan Conroy said the agency received 1,087 new applications for retirements and survivor benefits in September and October, compared to 846 during the same two-month period in 2019. Conroy credited this 28.5% increase in part to a reluctance to return to work or to continue virtual employment during the pandemic.
Conroy also noted a nearly 100% increase in withdrawal payments.
“This increase appears to be related to financial challenges associated with the COVID-19 pandemic and results of an internal project notifying inactive, non-vested members that accounts are no longer eligible for interest credits,” Conroy said. “It is not clear whether or how long the increase in retirement applications and withdrawals will continue.”
Despite these increased numbers, Conroy was optimistic about the direction KPERS is headed.
According to a 2019 valuation of KPERS, the unfunded actuarial liability of the state dropped from $9.2 billion in 2018 to $9 billion in 2019. That brings the funded ratio to 70%, still below the goal of 80%.
Conroy said they would reach that benchmark in 2026 and a 100% funded ratio in 2035 if all assumptions come to fruition. Assumptions made include a 7.75% return on investment in all future years and that all contributions to the fund are paid per current statutes.
Elizabeth Miller, KPERS chief investment officer, noted that returns for 2020 through Oct. 31 was 4.2%, short of the desired return on investment at this point. Despite this lower number, Miller was optimistic the agency would be able to meet the return assumption in the long term.
“We have not closed the books on November yet. I can tell you that the S&P 500 was up 11% in November and so we’re estimating a very robust November performance,” Miller said. “Something possibly around the 7% level. So, assuming we have just a flat December time, that should really help with annual valuation.”
Both Miller and Conroy noted the pandemic has brought great financial volatility and urged caution in getting too confident.
“Up and down the front, whether it’s the value of the trust fund, the funded ratio, or the unfunded actuarial liability — all of those are clearly moving in the right direction,” Conroy said. “So, overall, the stars have lined up.”
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