TOPEKA | A plan for eliminating a long-term shortfall facing Kansas’ public pension system won final approval Tuesday from the Legislature, even though it doesn’t accomplish many Republicans’ goal of starting a 401(k)-style retirement plan for new teachers and government workers.
The legislation goes next to Gov. Sam Brownback, a Republican who’s expected to sign it after describing the pension system’s problems as a pressing financial issue. The House approved the bill, 89-30, a day after the Senate passed it, 31-7.
The measure boosts the state’s annual contributions to the Kansas Public Employees Retirement System starting in July 2013, phasing in a $28 million annual increase over four years. It also will require public employees to choose between paying more of their salaries toward their retirement benefits and having their future benefits cut. It establishes a commission to study whether the state should move toward a 401(k)-style plan.
Supporters said the measure is an important step toward addressing the long-term funding shortfall facing retirement system. KPERS projects a gap of $7.7 billion between its anticipated revenues and benefits promised to teachers, judges, police, firefighters and other government workers through 2033.
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Republicans have large majorities in both chambers, but their leaders didn’t agree on moving Kansas toward a 401(k)-style plan. Some GOP legislators see such a move as crucial to the retirement system’s long-term health.
“This is not a complete solution,” said House Pensions and Benefits Committee Chairman Mitch Holmes, a St. John Republican. “We’re not totally happy with this, but I think it’s a step in the right direction.”
The measure emerged from negotiations between the two chambers. The Senate’s Republican leaders were wary of moving toward a 401(k)-style plan, and senators approved a plan setting up the study commission, with legislators voting next year on its recommendations.
The House had approved a bill that would have mandated a new 401(k)-style plan for teachers and government workers hired after June 2013. Other employees could have joined the new plan or faced a cut in their future benefits.
The compromise — preserving the study commission — had bipartisan support.
Some legislators assume the study commission will recommend moving toward a 401(k)-style plan, in part because seven of its 13 members will be appointed by Brownback and House Speaker Mike O’Neal, a Hutchinson Republican, who support the idea. Brownback has predicted that a study will result in a plan for at least a “hybrid” plan for new workers, giving them the option of joining a 401(k)-style plan.
Supporters of moving to a 401(k)-style plan contend the state can’t sustain traditional KPERS plans, which guarantee benefits up front based on a worker’s salary and years of service. They argue that until benefits are based on investment earnings, as they are in a 401(k) plan, each new employee adds to the pension system’s long-term funding problem.
But a recent KPERS report said a 401(k)-style plan would have startup costs, slowing efforts to close the long-term funding gap and costing the state and local governments an additional $1.2 billion in contributions to KPERS through 2033.
Public employee groups and Democrats strongly oppose such a move, fearing it would make retirement benefits less lucrative and less secure. They argue that the retirement system has problems because the state has shorted its annual contributions for too many years.
Such groups were pleased the bill didn’t mandate a 401(k)-style plan for new workers and still hope a study will highlight the problems associated with the idea, lessening political support for it.
“I just hope that the commission begins to work diligently and to address some of these questions,” said Jane Carter, executive director of the Kansas Organization of State Employees.
Some Democrats didn’t like the bill because it forces concessions from public employees, though those provisions wouldn’t take effect until legislators consider the study commission’s recommendations.
About 131,500 teachers and government workers covered by KPERS pay 4 percent of their salaries to the pension fund. They’d have the option of paying 6 percent and getting a slight bump in future benefits, or staying at 4 percent and seeing benefits drop significantly.
An additional 20,000 employees, hired after June 2009, already pay 6 percent of their salaries into KPERS, and they’ve been promised annual cost-of-living adjustments in their benefits after they retire. They’d have the option to still pay 6 percent but lose the future adjustments, or pay 8 percent and keep them.
Rep. Ed Trimmer, a Winfield Democrat, mocked supporters of the bill who said it “empowered” workers to make decisions about their retirement benefits.
“It empowers them to take a cut, one way or the other,” he said. “That’s hardly what I call empowering.”