Topeka Kansas Gov. Sam Brownback predicted Thursday that his state will move toward a 401(k)-style pension plan for new teachers and government workers and said it’s necessary in dealing with long-term funding problems facing their pension system.
The Republican governor favors such a move, and he said during an interview with The Associated Press that he expects legislators to either set up a study commission that will recommend the change or pass a bill this year that creates a 401(k)-style plan for new public employees.
Brownback said the state could eventually have a “hybrid” pension system for new teachers and government workers in which they choose between a 401(k)-style plan or a traditional one guaranteeing benefits up front based on an employee’s salary and years of service. Or, he said, the state could require new hires to join a 401(k)-style plan, as legislation approved by the state House would.
The Kansas Public Employees Retirement System, or KPERS, projects a $7.7 billion shortfall between anticipated long-term revenues and the benefits promised to retirees and current public employees. The House and Senate have approved separate plans for addressing the problem, and their negotiators are scheduled to meet Monday to begin work on a final plan.
Public employee groups strongly oppose a move toward a 401(k)-style plan, in which a retiree’s benefits are based on investment earnings, fearing it means less financial security. But supporters of the move question whether the state can sustain its traditional plans, and Brownback noted that legislators have been wrestling with long-term KPERS funding issues for two decades.
“It’s not as if it hadn’t been worked on for a long time, and that’s why I think for new folks coming in, we’ve just got to get to a different system,” Brownback told AP.
Brownback has avoided endorsing specific pension legislation, having asked lawmakers to draft a plan. In his comments Thursday, he seemed confident that Kansas will at least start a hybrid plan.
“On new people coming in, I think you’re looking at a new system of some type,” Brownback said.
Critics of 401(k)-style plans for public employees note that even if the state starts one, it will have to eliminate the long-term funding gap in existing plans. They argue that pushing workers into a 401(k)-style plan will rob older plans of employees’ contributions, making any funding shortfall worse.
“I still don’t understand why the governor doesn’t understand that,” said Jane Carter, executive director of the Kansas Organization of State Employees.
Public employee groups have pushed legislators to commit the state to making larger annual contributions to KPERS to close the long-term funding shortfall, arguing that shorting contributions for years caused much of the problem. Brownback agreed the state must “get the resources” to meet its obligations to public employees under their current, traditional plans.
Both the House and Senate plans increase the state’s annual contributions to KPERS, starting July 1, 2013. The House plan commits an additional $10 million a year, while the figure is $23 million under the Senate bill.
The Senate proposal increases the percentage of salary that most existing and future employees would have to contribute to KPERS. It sets up a commission to study other changes, including a potential move toward a 401(k)-style plan for public employees.
Senate Majority Leader Jay Emler, a Lindsborg Republican, agreed that the commission will probably recommend a 401(k) plan or hybrid for new public employees. He said the goal in setting up the commission is to get strong guidance from outside the Legislature.
“We will have a lot better input,” Emler said.
The House bill starts a 401(k)-style plan and makes it mandatory for teachers and government workers hired on or after July 1, 2013. Other workers could join that plan — and would have their future benefits cut if they don’t.
Brownback said that if legislators opt to create a study commission, he expects it to recommend either the House proposal or a hybrid plan with a 401(k)-style option.
“I think you’re looking one of those two coming out of the commission — if that’s the final bill that passes — or we’ll see what happens on the House’s proposal on KPERS,” Brownback said.
Carter accused Brownback of trying to “strong-arm” a commission even before it begins a study.
“It seems like a pretty swift and iron hand to me,” she said. “I’m alarmed by it, and I think the general public should be as well.”