TOPEKA — Future employees in the Kansas Public Employees Retirement System and those who aren’t vested by July 2013 would have 401K-style investments that grow and shrink with the markets under a plan recommended by the KPERS Study Commission on Tuesday.
Sen. Jeff King, a Republican from Independence who co-chairs the commission, said his proposal is the first step of a long process that aims to ensure that the Legislature funds benefits for teachers and government workers and doesn’t create the massive liabilities lawmakers are grappling with now.
The recommendations, approved in 8-3 votes, change nothing for vested employees — those with at least five years of service — and do little to address the $8.3 billion shortfall the system faces. The commission meets again today to discuss plans for vested employees and ways to deal with the shortfall.
KPERS provides about 260,000 current and former employees retirement plans that guarantee benefits based on a formula instead of market returns or member contributions. The system has more than 150,000 active members with an average salary of $40,024. The retirement system serves 25,737 state employees, 84,438 school district workers and 40,307 local government employees.
Under the recommendation approved Tuesday, new KPERS employees would be required to direct 6 percent of their wages to the plan. The state would contribute 1 percent the first year and ratchet up its contribution by half a percent each year until it reaches 5 percent in the ninth year of work. Then it would remain at 5 percent until the employee quit.
Supporters of moving toward a 401(k)-style plan contend the state can’t sustain traditional pension plans and that most private companies already offer 401(k)-style plans. But opponents believe such a plan will lead to less secure and less generous retirement benefits.
Sen. Laura Kelly, D-Topeka, said she’s concerned the proposal is “patronizing” by requiring an investment that the state won’t match in full. If the state moves to a defined contribution plan, employees should have a choice to participate in it, she said.
“I’d be more open to that than I am to this, which is the worst of both worlds for the employee,” she said. “We require their contribution and we guarantee nothing.”
KPERS currently guarantees benefits based on salary and longevity instead of allowing retirement investments to produce only what the markets provide. That volatility has led many to see significant reductions to money invested in 401(k) plans in recent years as the economy has struggled.
Gov. Sam Brownback has repeatedly advocated a 401(k)-style system, and Rep. Ed Trimmer, D-Winfield, suggested Brownback may have improperly influenced the commission.
He cited an Eagle editorial blog excerpt that paraphrased Brownback saying the commission “would recommend switching to a defined-contribution plan for new employees.”
“If that’s the case, and that’s what’s happening here, then I suggest we violated open meetings laws and decisions have been made for this commission outside this room and I think that needs to be investigated,” Trimmer said. He said he wasn’t directly accusing anyone of a violation, but he questioned how Brownback could say that and what it was based on.
Trimmer accurately recited what was written in an editorial blog on Kansas.com and printed in The Eagle. Brownback wasn’t quoted in the editorial; in a meeting with Eagle reporters and editors Tuesday, he said: “I think they’re going to recommend a defined contribution system for new hires.”
Brownback has predicted the commission would propose that the state start a 401(k)-style plan for new hires or at least a hybrid between such a plan and the state’s traditional plans, which guarantee benefits up front based on a worker’s salary and years of service, rather than tying them to investment earnings. Spokeswoman Sherriene Jones-Sontag said the governor merely repeated that prediction in his meeting with The Eagle.