(Syndicated to Kansas newspapers July 13, 2015)
No, it’s probably not often that state employees or food prep workers at public school districts in Kansas pay much attention to Greece, except maybe wondering whether they’ll ever be able to afford a vacation to the historic European nation.
Well, that’s changing…at least for the next month…while the economic problems of Greece have a pretty direct effect on the solidity of those employees’ pensions.
What do Greece’s economic troubles have to do with Kansas pensioners? It’s what happens to that over-borrowed economy, and international bond traders’ views on whether Greece is going to go broke, and by implication, make it impossible for Greece to repay its borrowings from the European Economic Union.
Stay with us here…because if the European Union isn’t going to be repaid for its lending to Greece, the value of EU bonds will drop…and the world’s bond traders won’t be eager to buy those bonds.
That means that United States bonds will be less risky investments for bond traders, who avoid risk, and U.S. bonds will sell at lower interest rates because those risk-avoidance bond buyers will settle for a little less interest return on their investments if they are rock-solid.
That’s how bonds work, and the more unsettled the Greek economy—and by implication, the European Economic Union which is the major lender to the Greek government—the better chance that U.S. bonds will carry lower interest rates because of their near-guaranteed ability to pay off those bonds.
Whew…enough of that international stuff.
But where it hits home with that state employee or food service worker is that the lower the interest rates that U.S. bond buyers will settle for in return for safety that they will get their money back, the better chance Kansas has in the next few weeks of issuing $1 billion in bonds for the Kansas Public Employee Retirement System.
Finally, the Kansas link.
Those bonds will give KPERS money to invest to produce earnings that will help pay for the state employee and school district employees’ pensions.
But…only if the interest rate paid to buyers of those bonds plus some administration and issuance fees total less than 5 percent of the bonds’ value.
That’s the hard line. If the state can get those bonds sold in the next month, and the interest and fees and such are less than 5 percent of that billion dollars, we sell the bonds and start investing the proceeds at hopefully more than 5 percent, and start making money with which to pay those pensions.
Above 5 percent? No sale. That means KPERS continues to inch along, with less money than actuaries believe is necessary to guarantee those pension payments, and that means that the state is going to have to either cut pension benefits—not really possible, a freeze is more likely—or start kicking in more money to the pension system from general tax revenues.
Now, watching KPERS become more fiscally solid is of course a good thing, but lawmakers and the governor would prefer that be done by KPERS investing that $1 billion, and making enough money to take care of itself and build reserves without more taxpayer dollars, which if you’ve been paying attention are a little tight right now…
Nobody, of course, wants Greece to go broke.
But, we have about a month to try to get those KPERS pension bonds issued, and…well…a little more hassle over Greek and European economics probably helps chances for Kansas pensioners.
Who’d have thought those far-away economic problems would be a key to Kansas pensions? We’ll see how that works out…