Though the Kansas Public Employees Retirement System reported a 14.5 percent net return on investment last year, the fund's gap between assets and liabilities rose by $1 billion last year.
KPERS executive director Alan Conroy told state lawmakers Wednesday that deferred losses from the market collapse in 2008 are mostly to blame for the system's unfunded liability increase to $10.2 billion.
Conroy said the retirement system was funded in 2012 at 56.4 percent of future liability, down from 59.2 percent in 2011. He says the industry standard was to achieve 80 percent funding of pension systems. While a pension system falling into the 60 percent to 80 percent range is cause for concern, anything below 60 percent is a problem, Conroy added.
Over the past 25 years, the system has received an average annual return of 8 percent on its investments. Progress on fixing the unfunded liability hit a wall in 2008 when KPERS' returns fell 30 percent.
Last year, the Legislature and Gov. Sam Brownback pushed reforms that increased employee and employer contributions and added a cash balance plan in 2015 to help with the system's long-term solvency. The cash balance approach blends a 401(k)-style option with the traditional defined benefit pension.
State lawmakers this year considered - but didn't embrace - the idea of converting KPERS to a 401(k)-style defined contribution plan. Lawmakers also considered issuing $1.5 billion in bonds to infuse KPERS with cash in an effort to inflate earnings and more quickly reduce the liability.
But Rep. Steven Johnson, an Assaria Republican, said that was off the table because rising interest rates on bond debt made it less appealing.
KPERS serves 156,000 active employees in state, local and school governments and 84,000 retirees.