Kansas, Wary of Market, Could Pull Back From $1 Billion Pension Bond Plan

Kansas lawmakers this week signed off on a plan that will allow the state to issue $1 billion of pension bonds in a bid to improve the funding of the state’s Employees Retirement System.

But one state agency is hesitant to pull the trigger due to concerns about the market.

Remember, pension bonds are only effective if the resulting investment returns exceed the interest paid on the bonds. That interest rate is currently 4.95 percent.

More from the Topeka Capital-Journal:

Market conditions could delay or prevent Kansas from issuing $1 billion in bonds as part of an effort to boost the financial health of its pension system for teachers and government workers, even though top state officials gave the go-ahead Thursday.

Republican Gov. Sam Brownback and five GOP legislative leaders signed off during a Statehouse meeting, a formal step required to authorize the new debt.

[…]

But two officials with the Kansas Development Finance Authority, the state agency that would issue the bonds, acknowledged Kansas may be blocked because the interest rate is capped.

“There is a possibility the rates go above where the cap is set in the legislation as we go to market with these in six weeks,” Shawn Sullivan, Brownback’s budget director, said after the meeting. The interest it would pay now is 4.95 percent.

[…]

State officials are trying to close a projected $9.8 billion shortfall between KPERS revenues and commitments for retirees’ benefits between now and 2033. Issuing the bonds will better fund the pension system in the short-term, and legislators trimmed the state’s projected spending on pension contributions for the next two years.

The Kansas Public Employees Retirement System says its investments have returned an average of 9 percent annually the last 25 years, which is why they are comfortable issuing a pension bond with an interest rate around 5 percent.

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