Politics & Government

Will 401(k) replace KPERS for teachers?

TOPEKA — Kansas legislators waded Monday into a debate over having the state move toward a 401(k)-style plan for teachers and government employees to attack the long-term funding problems of their pension system.

It's not clear how much support exists for the idea, included in legislation before a House committee.

The president of a free-market think tank and the chairman of a Topeka building construction supply company urged the House Pensions and Benefits Committee to endorse a bill making the change for teachers and government workers in 2013. They say the state and its taxpayers can't afford traditional pension plans.

Groups representing teachers, government workers and retirees oppose such a change, and their representatives told the committee that moving toward a 401(k)-style plan wouldn't solve the underlying problem facing the Kansas Public Employees Retirement System, or KPERS.

The pension system faces a projected gap of nearly $7.7 billion between its anticipated long-term revenues and the benefits it has promised current and future retirees over the next several decades.

KPERS covers 73,000 retirees and nearly 161,000 active public school, state and local government employees. State officials have been concerned about its long-term health for about two decades, but investment losses sustained during the recession widened its funding gap and sparked interest among some legislators in considering 401(k)-style plans.

Senate President Steve Morris, R-Hugoton, said the idea will receive serious consideration.

Kansas' public pension system currently guarantees an employee's benefits upfront, basing them on years of service and a worker's salary, rather than having benefits based on investment earnings. The bill before the House committee would close the state's traditional plans to teachers and government workers hired after July 1, 2013, and start a 401(k)-style plan for them.

Supporters of the change argue that the state — like many private businesses that have moved to 401(k) plans over the past few decades — realistically can't sustain traditional pension plans.

Ken Daniel, chairman of Midway Wholesale, the Topeka construction supply company, said it's not fair to force taxpayers to keeping pouring money into traditional plans for government workers that aren't available to private-sector workers.

"The people who are public employees need to start taking straws off of the camel," Daniel said.

Dave Trabert, president of the Wichita-based Kansas Policy Institute, said the state faces "catastrophic" increases in its pension contributions if it tries to close the gap in long-term funding without shutting off the current traditional plans.

But employee and retiree groups, as well as some legislators, are skeptical. They argue that a 401(k)-style plan offers less secure benefits.

"Do you really want to take your retirement security and gamble it on the stock market?" said Jane Carter, lobbyist for the Kansas Organization of State Employees, after the hearing.

Critics also note that if the state starts a 401(k)-style plan for new teachers and government employees, it still must close the funding gap in the existing plan, and they suggest the cost of contributing to two separate systems will be even higher.