Because Gov. Sam Brownback is still pushing to convert the state’s pension system to a 401(k)-type plan, it wasn’t surprising that the House amended a reform bill to include that option. But it still is unclear how the state would pay for the transition.
Brownback is correctly concerned that the Kansas Public Employees Retirement System is facing a projected $8.3 billion shortfall between anticipated revenues and benefits promised through 2033. He thinks that moving new employees to a defined-benefit plan is the best solution.
A 401(k)-type plan would certainly make sense if the state were starting from scratch in creating a pension system. But the challenge of doing it now is that there would be less money coming into KPERS to help cover the unfunded liability. In addition, there would be additional costs in operating multiple pension systems – $10.9 billion through 2060, according to one estimate.
As Sedgwick County Manager William Buchanan, who served last year on a special KPERS commission, told The Eagle editorial board: “The math doesn’t work.”
That reality – as well as concerns that state employees would be forced to shoulder too much of the burden of stabilizing KPERS – led the House Pension and Benefits Committee to back away from the 401(k) idea. Instead, it recommended an alternative plan that guarantees a specific return on employee and employer pension contributions.
The amended House bill now requires new employees to choose between this “cash balance” option and a 401(k) plan.
At least an amendment offered by House Minority Leader Paul Davis, D-Lawrence, which the House approved, tries to address the cost question. It designates that 75 percent of future casino gambling revenue be used to help pay down the unfunded liability.
House lawmakers also approved another amendment that modifies how their own KPERS benefits are determined. It changes a long-standing policy that calculates their earnings as if they worked 31 days a month for 12 months, or 372 days a year.
Though that’s a good start, lawmakers should base their benefits on their actual pay. As is, they treat their income for KPERS purposes as if they work the entire year, rather than the typical 90-day session. As a result, their “KPERS salary” can be more than four times as much as their actual pay.
If lawmakers are going to stick it to public school teachers, they need to curb their own pension perks.