The Kansas Public Employees Retirement System study commission has met the challenge given to it by the Kansas Legislature. The commission drafted a plan that would save Kansas taxpayers billions of dollars while offering a vibrant retirement system for public employees.
In its current form, KPERS faces a bleak future. With an unfunded liability of $8.3 billion, KPERS had the second-lowest-funded ratio of any state retirement system in 2010. In fact, the KPERS system is so upside down that it can never be fully funded in its present form.
The study commission, a group of five legislators and eight private citizens, spent the past six months studying KPERS and examining pension reform efforts across the country. It recommended three sweeping changes that will save Kansas taxpayers almost $4.5 billion while creating a sustainable retirement system that will improve benefits for most future KPERS-eligible employees:
• The commission tasked the Legislature to immediately fund the amounts needed to properly reduce the KPERS deficit. Decades of legislative underfunding have exacerbated the current KPERS problem. By putting new money immediately into KPERS, the Legislature would save billions in future costs.
• For current employees with three or more years of service, the commission endorsed a plan tentatively adopted by the 2011 Legislature. House Bill 2194 would provide current public employees with two choices for their future years of service: Pay 2 percent more of their salary into KPERS for a 6 percent benefit increase, or keep current contribution levels while accepting a 20 percent benefit reduction.
• The commission proposed a new 401(k)-type system for future employees and those with fewer than three years of service. Employees would contribute 6 percent of their salary to their retirement fund (as they do in the current system). The state would also contribute 1 percent for new employees, increasing annually to a maximum of 5 percent after eight years of service. These retirement savings will grow based on market returns. Unlike in traditional 401(k) plans, public employees could invest their savings at virtually no cost with KPERS investment experts and would receive an above-market rate annuity from the state’s retirement contributions.
Not only will the commission’s plan save Kansas taxpayers billions of dollars, it will provide greater retirement benefits to most new public employees. The new plan aids employees who change jobs or leave Kansas during their career. For instance, under historic investment returns, a teacher who works from age 22 to 47 will retire with double the benefits under the commission’s plan.
Most important, the commission’s plan is a “pay-as-you-go” system. This requires the Legislature to pay all of its retirement obligations on an annual basis. No longer will Kansas push the retirement costs of today’s workers onto the next generation of taxpayers.