Trustees of the Kansas Public Employees Retirement System are considering lowering the assumption that it will realize an 8% annual return on its investments. KPERS executive director Glenn Deck told the Senate Ways and Means Committee that the assumed rate of return will be lowered to between 7% and 8%.
A lower target rate would allow the system’s portfolio managers to make more prudent investment decisions, according to Deck.
He said KPERS has exceeded the 8% level seven times since 2000 with only four years in which the return fell below the assumed level. However, Deck said, a 4.4% loss in 2008 and a 19.6% loss in 2009 resulted in a growth rate of less than 8% a year over the past 15 years.
KPERS’ $12.3 billion trust fund has an unfunded liability of $7.7 billion, based on the 8% rate.
If the return rate is lowered to 7.5%, Deck said, the unfunded liability would grow to $9 billion.
He said the liability situation is worsened by a law passed in 1993 that limits the state’s contribution to the pension system at only 60% of the level that would adequately fund the promised benefits.
“The longer we wait to fix the system, the more it will cost,” Deck said.
KPERS has 161,000 active members, 43,000 inactive members, and 73,000 retirees. It paid $1.1 billion in benefits last year and received $780 million in contributions.