Between April 2008 and April 2010, the private sector in Kansas has experienced an overall loss in jobs of approximately 5.89 percent, while the public sector has experienced an overall gain in employment of approximately .83 percent.

Within the last two years, 2,200 government jobs have been created, while the private sector has lost 66,700 positions. In addition to taxpayers footing the bill for the creation of these additional government jobs, the State Employee Pay Plan Oversight Committee yesterday approved a pay raise of $15.524 million that will be extended to roughly 8,662 state employees. The state general fund has $8.5 million earmarked for the increase in pay and the remainder will come from other revenue sources such as fee funds, according to the Kansas Legislative Research Department.

The group of state employees will be receiving raises ranging from 2.5 percent to 15 percent. The raises were negotiated in response to a five-year plan adopted by the Legislature, which is set to increase pay for state employees who are currently compensated at a level determined to be below the market average.

As the public sector and its salaries continue to grow, so does the dependence on the state’s pension plan, KPERS. In Kansas, state employees, judges, firemen and police officers receive their pension through the KPERS program, a defined-benefit retirement program in which benefits are determined through a formula and guaranteed by law.

The pension is based on the number of years a person has worked for the state and their average salary, so the state employee raise will impact KPERS, said KPERS spokesperson Kristen Basso.

Art Hall, executive director of the Center for Applied Economics at the University of Kansas School of Business, said he expected the increase in salaries to have a relatively small impact on KPERS.

“It is really just a drop in the bucket,” Hall told Kansas Liberty.

The salary increase will add to the difficulties of the KPERS fund, though in a small manner, Hall said.

In September 2009, Hall and Barry Poulson, a professor of economics at the University of Colorado, compiled the first installment of a three-part report on KPERS. The report found that KPERS was insolvent because of structural problems and at the time of the report, KPERS had $10.25 billion in total unfunded actuarial liabilities.

The next report released by KPERS on its unfunded actuarial liabilities will be released in July. Hall said he would expect for the total unfunded actuarial liabilities to decrease because the market has picked up within the last year.

KPERS has assets of $11.5 billion at this time, Basso said.

Currently KPERS promises state employees an 8 percent return on long-term plans, which Hall said is not consistent with what investments are receiving at this time.

“No one is getting 8 percent anywhere in the world today and it is not clear when anyone is going to get 8 percent,” Hall said. “If we can’t get that 8 percent, then the state is going to have to make up the difference. By using this 8 percent you are setting up future taxpayers for another big hit.”

The KU report suggested that any new state employee brought into KPERS be put on a defined-contribution system, which differs from a defined-benefit retirement system in that it requires that a portion of an employee’s salary is pooled into a retirement plan, and then these funds are invested and therefore subject to losses or gains depending on the state of the market. The report also pointed out that pension plan solvency problems are occurring nationwide, so the issue is not unique to Kansas.

Most private business, in addition to the Kansas Board of Regents, currently use a defined-contribution plan.

Because benefits through KPERS is guaranteed by law, if at some point in the future KPERS does not have enough funds to pay out claims, the responsibility would fall on state government, which could either raise taxes or cut spending to produce the funds.

Hall will be releasing his second installment of the KPERS study in the near future, and this report will focus on how state employees’ pension plans would hypothetically be impacted if they were placed in a defined-contribution plan.

During the 2010 session attempts to implement Hall’s recommendations were not advanced, and Hall says he plans to push for the reform again next year.

“Right now the balance of everything is still off,” Hall said. “The fund is still insolvent.”

Rep. Sharon Schwartz, R-Washington, and chair of the special committee KPERS, said that KPERS needed to be addressed as soon as possible by legislators. Schwartz said that some of the backlash against Hall’s proposal was because of confusion. Schwartz said some legislators thought that the proposal was to shift all employees onto a defined-contribution plan, which would be against the law, instead of just putting new employees onto a defined-contribution plan.

“That will absolutely have to be a priority next session,” Schwartz told Kansas Liberty. “We are OK today but if we look out a ways you can see that we just can’t continue down this road.”

Resources:

State Employee Pay Plan Oversight Committee

Summary of 2011 Market Adjustments by the State Employee Pay Plan Oversight Committee

FY 2011 Market Adjustments by the State Employee Pay Plan Oversight Committee

KPERS

KDOL April 2008 data

KDOL April 2010 data

KPERS facing bankruptcy if changes are not made, report says

The Week in Review