Gov. Sam Brownback on Friday declined to provide clear direction on whether he plans to pursue privatization of the state’s pension program as he touted the recent sale of $1 billion in bonds to boost the underfunded system.
The Republican governor’s administration has spoken about the possibility in previous months, though no concrete proposals have been offered.
At a news conference, Brownback didn’t rule out privatization — but at the same time didn’t indicate any immediate plans to push for it. Asked multiple times about privatization, he said only that he would continue to review the system.
“We’ll continue to review options, but we’ve made a lot of progress. The Legislature has done a lot of good, heavy lifting on a system that desperately needed it and was the biggest fiscal problem by far that we faced when I came into office,” Brownback said.
In December, the administration urged lawmakers to examine long-term options for the Kansas Public Employees Retirement System, including converting KPERS to a 401(k)-style retirement investment program. Jim Clark, then the secretary of administration, said the option should be studied, while stopping short of a full endorsement.
In addition, in May lawmakers heard from companies that offer 401(k)-style plans. Those presentations didn’t yield successful legislation.
Mark Desetti, lobbyist and political advocacy director for the Kansas National Education Association, said he didn’t hear anything from Brownback that signaled a need for radical changes to KPERS.
Still, Desetti raised several objections to privatization if it is contemplated.
“It’s far more expensive to the system to make that change. They can’t do it until the system is on a very stable footing. States that have done that have gone back,” Desetti said.
On Friday, Brownback also said the state sold $1 billion in bonds for KPERS at an interest rate of 4.69 percent. KPERS director Alan Conroy, who accompanied Brownback at the news conference, said the proceeds from the bond sale have already been invested. The Legislature passed a bill this past spring authorizing the sale of the bonds.
Conroy also said recent market volatility likely wouldn’t affect the pension system’s financial situation.
China’s markets have plunged in the past few weeks, spreading fear globally and sparking declines in stock prices in exchanges around the world, including in the United States. The Dow Jones Industrial Average has declined nearly 2,000 points in the past month and a half — from more than 18,100 points in mid-July to about 16,100 late this week.
“Certainly, there have been a couple down days, up days. But, of course, that’s where as a large, institutional investor, which is in for a long haul — that 50-year outlook, there’s going to be lots of ups and downs,” Conroy said.
“We’re not day traders. We’ll let this play out. There will be some downturns, there will be some upturns.”
As of late 2014, KPERS had funded about 62 percent of its liability. Brownback and Conroy were unable to provide an updated figure on Friday.
According to figures released at the news conference, the funding ratio for the group of pensions that include state and school workers was at about 59 percent at the end of 2014 and is expected to rise to a little more than 65 percent by the end of 2015.
KPERS audit released
Separately, Legislative Post Audit released a report on fraud and abuse prevention within KPERS.
Auditors found seven teachers in the state who were incorrectly awarded KPERS service credits while working for education associations. The teachers hadn’t been working in their district while working for the associations.
But when reporting payroll information to KPERS, districts continued to show the teachers as working for them, the audit said. In addition, auditors said it was likely the service credits had been incorrectly awarded in that way for many years.
Rep. Ron Highland, R-Wamego, had requested the audit. In a statement, he said the findings will be valuable as lawmakers work to create a new education funding system.
The Legislature this year replaced the state’s funding formula with a temporary block grant system.
“This audit validated our concerns; in the future we need to take more interest and a closer look at all funding for every state government organization, to include their accounting practices,” Highland said. “A uniform accounting system used by all school districts statewide would help legislators, school board members, and parents ensure financial accountability.”
Desetti said districts had been following the rules as best they could.
“They believed they were doing right, that they were following the rules,” Desetti said. “I think maybe what’s been found here is there’s been a new interpretation of those rules. I know KPERS has updated the employer manual to reflect that. The employer manual was somewhat vague on whether they could or not.”