Two States, Wildly Different Pension Systems Both Kansas and Nebraska are big, windy farm states known for fiscal conservatism. But Kansas has one of the most underfunded pension systems in the country, while Nebraska has managed its fund quite well. How did these two states wind up in such different places?
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Two States, Wildly Different Pension Systems

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Two States, Wildly Different Pension Systems

Two States, Wildly Different Pension Systems

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We're hearing this week about the state public pensions across America. Today, we visit Kansas and Nebraska. The two are quite a bit alike: big, farm states, proud of their pioneer heritage. But when it comes to the way they approach their pension funds, they couldn't be more different. Nebraska has its funds in top condition, while Kansas is in terrible shape. KCUR's Frank Morris reports.

FRANK MORRIS: Lots of people don't have a retirement plan, but among those who do, there are two basic types: the 401(k) and the traditional pension plan. Now, the traditional pension has just about disappeared from the private sector, but it's still quite common for government workers: police, firemen, teachers. And it can be a pretty good deal.

Mr. CLIFFORD MANNING (Retired teacher): We are living right now on the same amount of money that we were living on when I was teaching the whole time. And when I get Social Security, I'll actually get a raise.

(Soundbite of laughter)

MORRIS: Clifford Manning retired five years ago as a high school band teacher here in Topeka, Kansas at 59 with full benefits from the state retirement system. But at the rate Kansas taxpayers and state workers are contributing to the pension fund, the state can't sustain this kind of pension indefinitely.

State Senator ANTHONY HENSLEY (Democrat, Kansas; Minority Leader): The chickens have come home to roost.

MORRIS: Anthony Hensley, a Democrat, is the Minority Leader of the Kansas Senate.

State Sen. HENSLEY: I mean, it's been years and years of neglect. Now we have an unfunded liability that makes our system, according to this new Pew report, the second-worst in the country.

MORRIS: At the beginning of last year, the fund was over $8 billion in the hole, less than 60 percent funded and losing ground.

Mr. GLENN DECK (Pension Fund Manager): I don't know. I'm a native Kansan, and it is a little surprising.

MORRIS: Glenn Deck runs the pension fund from his office here in downtown Topeka. He says the benefits Kansas gives are relatively low, so that's not the problem. Deck says a bit of bad advice set up the mess in Kansas. When the state raised benefits in the early 1990s, an actuary told lawmakers that investment income would cover the difference.

Mr. DECK: It was reliant too much on, you know, great investment returns during that time, and the belief that things would continue to go up. And the world changed.

MORRIS: The stock market tumbled and didn't fully recover. Gradually, the state began to raise contributions. Then it cut benefits sharply. New hires have to work longer and contribute more before drawing pensions.

Not enough. The fund is still deteriorating. But since pensioners keep getting their checks, Kansas Senate President Stephen Morris says it's hard to get his colleagues to pay attention.

State Senator STEPHEN MORRIS (Republican, Kansas; State Senate President): Oh, sometimes you see eyes rolling and people looking away and, you know, why do we have to do this? But we do.

MORRIS: Sickly pension systems do not right themselves. They snowball. But it doesn't have to be this way.

State Senator DAVE PANKONIN (Republican, Nebraska): All those in favor vote yea, opposed nay.

(Soundbite of bell)

MORRIS: About 3 1/2 hours north of Topeka, in Lincoln, Nebraska, Senator Dave Pankonin chairs the committee overseeing a pension system in near-perfect health.

State Sen. PANKONIN: Nebraska has had this tradition of consistently looking at the plans, trying to take action as needed, instead of waiting and kicking the can down the road until it's a full-blown crisis.

MORRIS: It's more than a tradition. It's state law. Unlike their colleagues in Kansas, Nebraska lawmakers are required to keep the pension funds flush.

That makes Phyllis Chambers' job easier. She runs the pension system. Her actuaries calculate the amount the state can expect to pay out in pensions. They balance that number against contributions made by workers and the state, plus investment income. If there's a shortfall, Chambers simply hands lawmakers the bill.

Ms. PHYLLIS CHAMBERS (Director, Nebraska State Pension System): This is your liability for the year. It's not an if, but it's more like this is what it is.

MORRIS: Another difference is that Nebraska's pension fund is much smaller. There are fewer workers to cover. Most of them are on a 401(k)-type system, with the state more than matching worker contributions. It's almost impossible for the state to end up with big pension liabilities. Judges, highway patrol officers and teachers have traditional pension plans, and, as you might expect, they sound pretty happy.

Mr. ROBIN STEVENS (School Superintendent): All indications are to me that we're protected and everything's going to work out really well for us.

MORRIS: Robin Stevens here is attending a retirement seminar in Omaha. He's a school superintendent. He's heard about the trouble with the Kansas pension fund and thinks it might be making it easier for him to recruit new teachers.

Mr. STEVENS: When we have openings in Nebraska, it seems like we're getting more Kansas applicants.

MORRIS: Stories like this and various studies have turned up pressure on Kansas to fix its pension fund. It's not going to be easy.

Senator Morris wants big increases in workers' mandatory contributions to the fund, and the amount the state is putting in. But the state already faces an enormous budget shortfall, so it's hard to imagine where the money would come from.

There's also talk of phasing out the traditional pension fund altogether and moving to a 401(k)-type system, more like Nebraska.

For NPR News, I'm Frank Morris.

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