The Kansas Public Employees Retirement System, or KPERS, is expected to decide in the coming months on whether to downgrade its estimate of how much it expects its investments to earn. The decision will affect the state budget for years to come.
A reduction would ultimately require the Legislature to provide additional state funding for pensions -- likely millions a year -- to make up the shortfall from anticipated lower investment returns. The increased spending would eat into the money available for the priorities of Gov.
But on the flip side, if pension leaders maintain the current expected rate of return and investments underperform, the bad gamble could mean higher costs to KPERS for decades.
The KPERS Board of Trustees will set the rate. Its chairman,
KPERS manages the retirement plans of more than 311,000 current and former public employees. It paid out
The current assumed rate is 7.75 percent, making it one of the highest among public pension systems in
KPERS last cut the rate in 2016, reducing it from 8 percent to its current level. It was the first rate cut in decades.
In response, KPERS' unfunded liability -- the amount of money it needs to fully cover retirement costs -- increased by more than
But at the same time, the more pessimistic outlook would leave KPERS less likely to be dramatically affected by changes in the economy.
"As you lower your rate of return, you lower your exposure to risk," said
The choice confronting the KPERS board comes after Kelly fought early this year to refinance the pension system to lower the amount the state owes each year. Lawmakers defeated the idea, contending it would ultimately cost
It's unclear whether Kelly will again attempt to pursue refinancing.
Over the past decade,
KPERS funded ratio rose from 59 percent in 2012 to 68 percent in 2018. In short, the system has enough assets to cover 68 percent of all of its future obligations to retirees.
"The good news is it's not as big a deal as it has been," Johnson said. "We're at the point where we're getting roughly the right amount of money into KPERS."
Only 15 percent of public pension systems surveyed by the
"Some funds invest more aggressively and feel that over time that they can make a higher return that other funds" while others are more conservative, Brainard said.
KPERS' investments have performed well over the long term. Over the past 25 years, its investments have produced an 8.1 percent return. In the past 10 years, the return has been 9.8 percent.
KPERS has exceeded its assumed rate of return 11 of the past 20 years.
In a briefing last week,
"We're trying to kind of shoot for middle ground when we're looking at a range," Beckham said.
The KPERS board is expected to develop a recommendation during its monthly meetings this fall.
"It's still very early in our process here," Conroy said.
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