How Greece’s Crisis Is Affecting Kansas’ Pension Bond Plan

Greece’s economic crisis is affecting many parties, both inside and outside the Euro zone. But the country’s standoff is having a particularly interesting effect on the state of Kansas and its plan to issue $1 billion in pension bonds.

Kansas can’t issue the bonds if the interest rate exceeds 5 percent. That’s where Greece comes in.

Bloomberg explains:

Kansas officials have reason to hope Greece doesn’t sort out its debt impasse right away.

The state plans to sell $1 billion of taxable bonds by mid-August to shore up its main pension fund, said Jim MacMurray, senior vice president of the Kansas Development Finance Authority, which is handling the sale. Kansas can’t sell the 30-year debt for yields above 5 percent, according to state law. It may be running out of room: Similar bonds that Kansas sold in 2004 with insurance have traded less than a half-percentage point below that level.

Greece’s standoff with creditors over austerity measures such as pension cuts is helping keep Kansas’s bond plan alive. The euro-area tension is holding down interest rates by stoking demand for Treasuries even as bets build that the Federal Reserve is getting closer to raising borrowing costs.

“We have interest-rate risk until we can get to market,” MacMurray said in an interview. “It’s certainly possible we could get hit by higher rates.”

The proceeds from the bonds would be invested in the portfolio of the Kansas Public Employees Retirement System, which is currently about 60 percent funded.

Officials estimate that the pension bonds – if they work as intended – could improve the funding ratio by 6 percentage points. Opponents of the bond plan say that funding levels could just as easily swing the other way if markets don’t cooperate.

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