TOPEKA – Volatility in the stock market will push annual return on investment to the Kansas Public Employees Retirement System into negative territory at close of year, the pension system’s executive director said Nov. 29.
The assumed investment return for KPERS was adjusted downward in May from 7.75% to 7%. To strengthen the bottom line, the Kansas Legislature agreed to pump an extra $1.1 billion into the system.
The snapshot on investment return will be calculated based on financial position of the portfolio Dec. 31, said Alan Conroy, executive director of KPERS.
“If you have the strength to watch the markets these days, the volatility – October was a great month, but some of the months have not been so good,” Conroy told House and Senate members at the Capitol. “We’ll see where we end up at the end of December. But, I think, where we stand right now, the return will probably be negative for calendar year 2022.”
Conroy didn’t offer a projection as to how far under water the $24.8 billion portfolio would be at close of this year’s business.
Advocates of KPERS’ 300,000 members with careers in schools, the judiciary, law enforcement, firefighting and other government entities have pressured the Legislature for years to approve a cost of living increase, with many of those proposals ranging from 1% to 5%.
In Kansas, the last cost of living adjustment was issued in 1998 and the last one-time cash bonus to retirees was made in 2008. The Legislature authorized 16 cost-of-living adjustments from 1971 to 1997.
Sen. Rick Billinger, a Goodland Republican and chairman of the Senate Ways and Means Committee, said he wasn’t convinced the state should grant a COLA because it would inflate the system’s long term unfunded liability above the current $9.8 billion. KPERS is a prefunded system that invests employee and employer contributions to pay benefits years into the future. A COLA, which can be viewed as an unfunded benefit change, would exacerbate the unfunded liability.
“The stock market is down today,” Billinger told Conroy during a meeting of an interim House-Senate committee. “And, you’re going to probably be negative for this year. We’re not going to short anybody what we have been paying them all along. They’re going to continue to get that check, even though the market is down.”
The senator said a COLA would repeat mistakes of the past when the Legislature made a series of insufficient contributions to KPERS.
“That’s the problem with our whole system now,” Billinger said. “We didn’t make the required contributions when we were supposed to.”
Rep. Brandon Woodard, D-Lenexa, said only 10% of current KPERS retirees were around in 1998 when the last COLA was approved. He said various legislative committees with ties to KPERS ought to seriously consider making the first adjustment in a quarter century.