Negotiators for the Kansas House and Senate agreed Tuesday on legislation creating a new pension plan for future teachers and government workers and diverting revenues from state-owned casinos to retirement benefits for public employees.
Three senators and three House members resolved the last of their chambers’ differences on pension issues. The Senate will vote first on the compromise, possibly as early as Wednesday. Approval in the Republican-controlled Legislature would send the measure to Republican Gov. Sam Brownback, who supports it.
The compromise includes a plan to use casino revenues to bolster the long-term financial health of the Kansas Public Employees Retirement System. It projects an $8.3 billion shortfall between its anticipated revenues and the benefits promised to public employees through 2033.
The legislation also includes a new retirement plan for teachers and government workers hired after 2014, moving away from traditional KPERS plans guaranteeing retirement benefits up front, based on a worker’s salary and years of service.
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But the new plan would not go as far as 401(k) plans common in private industry by tying benefits solely to a plan’s investment earnings. House negotiators dropped a proposal to create a voluntary 401(k)-style plan for new public employees.
The negotiators wanted to start a new retirement plan to limit the state’s future financial risk in providing retirement benefits to public employees. But they also said they didn’t want to make benefits too stingy.
“We need to be protecting these folks, to make sure that when they retire, they have enough money to live on,” said Sen. Laura Kelly, a Topeka Democrat, one of the negotiators.
Last year, to help close the long-term KPERS funding gap, lawmakers boosted the state’s annual contributions to the retirement system and required public employees either to contribute more of their salaries or accept less generous benefits. But Brownback and many legislators didn’t believe those changes were enough.
Public employee groups worry that further changes will result in less generous benefits.
“They don’t need to start a new plan,” said Terry Forsyth, a lobbyist for the Kansas-National Education Association teachers’ union.
Negotiators agreed that the new retirement plan for future hires would pay 5.25 percent annual interest on the state’s and workers’ contributions to their retirement benefits. Upon retirement, a worker would receive a lump sum that could be converted into an annuity. The House had set the rate at 5 percent and the Senate at 6 percent.
If KPERS earns more than 8 percent on its investments in a year, it also could pay a dividend toward workers’ retirement benefits. The amount would depend upon how much the long-term funding gap has shrunk.
“It’s a good compromise,” said Sen. Jeff King, an Independence Republican and one of the negotiators.
When the House approved its version of pension legislation in March, it included a provision to give new hires the choice of joining such a plan or a 401(k)-style plan. Senators voted 20-20 against starting a 401(k)-style plan before approving a pension bill earlier this month, and negotiators conceded any 401(k)-style proposal would likely fail there again.
The plan to use casino revenues to help close the long-term KPERS funding shortfall has Brownback’s backing and bipartisan support, but senators didn’t debate the idea previously. Kansas has licensed developers to operate casinos in Dodge City, in Kansas City and south of Wichita, and the state receives 22 percent of the gambling revenues.
The state has committed $10.5 million a year in casino revenues through 2021 to state universities’ engineering programs. The House wanted to dedicate 75 percent of the remaining revenues to KPERS, starting in July 2013, and the negotiators settled on 50 percent. Supporters have predicted that could add up to several billion dollars over the next 20 years, though no solid estimates exist.