The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of December 31, 2015, the most recent date for which an actuarial valuation is available, Kansas's pension system for teachers is 53.8 percent funded, an increase of 5.9 percentage points since NCTQ's last report. Its current pension debt is $12,500 per pupil throughout the state. It also has an amortization period of 18 years. This means that if the plan earns its assumed rate of return of 8 percent and makes its full actuarially determined contribution payments, it would take the state 18 years to pay off its unfunded liabilities. The state's system is not financially sustainable according to actuarial benchmarks.
In addition, Kansas commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 12.01 percent for members under the old plan is too high, in light of the fact that local districts must also contribute 6.2 percent to Social Security. The rate is set by statute and is allowed to increase by up to 1.1 percent in FY 2016 and 1.2 percent in FY 2017. These increases, however, are unlikely to be sufficient for the fund to make the actuarially required contributions necessary for paying down the system's unfunded liabilities. The actuarially required rate of 16.38 percent is higher than the statutory rate. Consequently, contribution rates will need to be higher in the future than if the system contributed the full actuarial amount. Otherwise, debt accrual will accelerate.
The employer contrition rates to the new cash balance plan are reasonable. Employers make a contribution each quarter to employees' annuity savings accounts. They contribute 3 percent for members with less than 5 years of service, 4 percent for members with 5 to 12 years, 5 percent for members with 12 to 24 years, and 6 percent for members with 24 or more years. The mandatory employee contribution rate of 6 percent (for both the old and new plans) is reasonable.
Kansas Public Employees Retirement System, Valuation Report as of December 31, 2015.
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded to allow more protection during financial downturns. Kansas, however, should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. Improving funding levels necessitates, in part, systemic changes in the state's pension system. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
Kansas did not respond to repeated requests to review this analysis.