TOPEKA — Kansas legislators drafted a compromise Wednesday to attack the state pension system's long-term funding problems. The plan doesn't include a commitment to start a 401(k)-style pension system for teachers and government workers.
The new plan creates a commission to study whether the state should start a 401(k)-style plan and other issues, requiring the group to make recommendations to legislators next year.
It emerged from negotiations between three senators and three House members who were trying to reconcile the differences between their chambers on pension legislation.
The bill also requires public employees to choose between paying a higher percentage of their salaries into the Kansas Public Employees Retirement System and having future benefits cut. The measure commits the state to increasing its annual contributions to KPERS starting in July 2013.
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The proposal will go to both chambers for votes, possibly by the end of the week. If it clears the Republican-controlled Legislature, the measure will go to Gov. Sam Brownback.
The retirement system projects a $7.7 billion gap between anticipated revenue and the benefits promised to teachers, judges, police, firefighters and other government workers through 2033.
"The Legislature had to act," said Sen. Jeff King, R-Independence, his chamber's lead negotiator. "I think it's a good compromise, and I think it gets us down the road to a long-term solution."
The key issue was establishing the 401(k)-style plan for teachers and government workers, tying their benefits to investment earnings. Current KPERS plans guarantee benefits up front based on a worker's salary and years of service, and the state is on the hook instead of employees if the retirement system's revenue doesn't keep up.
The House approved a bill to create a 401(k)-style plan for all teachers and government workers hired after June 2013, cutting future benefits for other employees who didn't opt to join. Republicans who support the idea said if the state doesn't close current KPERS plans, each new worker adds to its long-term liabilities.
Asked about the chances of the House passing the compromise plan, House Pensions and Benefits Committee Chairman Mitch Holmes, R-St. John, said, "I'll do my best to sell it over here."
Senate GOP leaders contend a study is prudent, allowing legislators to pull public employee representatives and business leaders with expertise in pensions into the debate. Also, a 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 through 2033.
"I think it's a real good step in the right direction," Terry Forsyth, lobbyist for the Kansas-National Education Association teachers' union, said of the compromise. "There are a lot of contingencies we have to deal with yet."
About 131,500 teachers and government workers covered by KPERS pay 4 percent of their salaries to the pension fund. Under the new plan, they could pay 6 percent and get a slight bump in future benefits, or stay at 4 percent and see 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. Under the plan, they could pay 6 percent but lose the future adjustments, or pay 8 percent and keep them.
The state would phase in a $28 million increase in its annual contribution to KPERS over four years, starting in July 2013.