Pension Sustainability: Kansas

Analysis of Kansas's policies

As of December 31, 2009, the most recent date for which an actuarial valuation is available, Kansas's pension system for teachers is 56 percent funded and has an amortization period of more than 23 years. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state over 23 years to pay off its unfunded liabilities. The state calculates its necessary payments based on a 23-year amortization period. However, the state only contributed 68.8 percent of the necessary rate in fiscal year 2009. With such a low contribution percentage, the actual amortization period almost certainly exceeds the 30-year regulatory requirement . In addition, its funding ratio is drastically below the recommended 80 percent benchmark. The state's system is not financially sustainable according to actuarial benchmarks.

In addition, Kansas commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 9.37 percent is too high, in light of the fact that local districts must also contribute 6.2 percent to Social Security. The rate is set by statute and cannot increase by more than 0.6 percent a year, unless it is to fund new benefit enhancements. The contribution cap will rise to 0.9 percent in 2014 and continue rising 0.1 percent until it reaches 1.2 percent. The mandatory employee contribution rate of 6 percent is reasonable.

Citation

2010 Comprehensive Annual Financial Report, Kansas Public Employees Retirement System http://www.kpers.org/annualreport2010.pdf

Recommendations for Kansas

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of less than 30 years to allow more protection during financial downturns. However, Kansas should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.

State response to our analysis

Kansas recognized the factual accuracy of this analysis.