The Kansas Senate Ways and Means Committee approved a proposal for $1.5 billion of taxable pension bonds to bolster the Kansas state employee retirement system late last week.

The committee gave the go-ahead after amending House Bill 2403 to provide for a maximum interest rate of 4% on the taxable debt for Kansas Public Employee Retirement System. The original version adopted by the House on March 26 had a 5% cap on the interest rate.

The Senate will consider the measure when it returns May 8 from recess.

The bill authorizes Kansas Development Finance Authority to issue one or more series of up to $1.5 billion of the taxable bonds with approval from the State Finance Council. The bonds will probably be issued in tranches of no more than $500 million, state officials said.

Proceeds would be deposited into the system's $13.1 billion investment fund with expectations of obtaining long-term returns of 8%.

The $1.5 billion is projected to allow KPERS to close the funding gap from the current 53% of obligations to 61% by 2015.

Debt service on the 30-year bonds is estimated at $86.3 million a year by the Division of the Budget.

Kansas issued $500 million of pension bonds in 2004 rated Aa2 by Moody's Investors Service and AA by Standard & Poor's.

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