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Archive for Monday, April 25, 2011

Key Kansas House member insists on 401(k)-style pension plan

April 25, 2011, 8:18 a.m. Updated April 26, 2011, 1:50 a.m.

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— Moving to a 401(k)-style plan for Kansas teachers and government workers could slow efforts to eliminate the state retirement system’s long-term funding problems, according to a report released Monday that also shied away from taking sides in the Legislature’s debate over pensions.

The report, prepared by actuaries for the Kansas Public Employees Retirement System, projected lower long-term costs for the state under legislation approved by the Senate last month than under a bill passed by the House, also in March. The report also said the House plan could lower monthly benefits for retirees.

Three senators and three House members must reconcile their chambers’ differences and opened negotiations Monday. The House’s pension bill would put public employees hired after June 2013 into a 401(k)-style plan, while the Senate’s legislation calls for a commission to study that idea and others.

The state pension system projects a $7.7 billion shortfall between anticipated revenues and benefits promised to public employees through 2033. Legislators expect to pass a bill addressing those long-term funding woes after they reconvene Wednesday to wrap up business for the year.

Leaders of the House’s Republican majority see a 401(k)-style plan as important to solving the pension system’s problems because such a plan would tie retirement benefits to investment earnings. The state’s traditional plans guarantee benefits up front, based on a worker’s salary and years of service — and long-term funding shortfalls develop when revenues don’t keep up with the promises.

But the new KPERS report said starting the 401(k)-style plan adds some costs even as the state closes the long-term funding gap in its traditional plans, helping to make the gap in the state’s and local governments’ costs between the House and Senate plan about $1.2 billion through 2033. Still, KPERS officials declined to say whether the House or Senate plan is better.

“There are pros and cons they’ve got to weigh,” said KPERS Executive Director Glenn Deck.

House Pensions and Benefits Committee Chairman Mitch Holmes, a St. John Republican and his chamber’s lead negotiator, went into the talks promising to hold out for a 401(k)-style plan. He didn’t back away after seeing the new numbers from KPERS.

“I think we need time to digest them,” he said.

Sen. Jeff King, an Independence Republican and his chamber’s top negotiator, said the numbers reflect a need for lawmakers to “move at a deliberate pace” — supporting a study commission.

But the report’s message seemed clear to public employee and retiree groups, which oppose moving toward a 401(k)-style plan.

The report said a worker retiring after 30 years of service, with benefits based on a salary of $40,000, now would be guaranteed $1,750 a month. The report projected a monthly benefit for the same worker of just over $1,100 under the House’s 401(k)-style plan — though KPERS officials cautioned that the figure was based on pre-retirement investment earnings averaging 7 percent a year, lower than what KPERS assumes for itself.

“The Senate plan is head and shoulders above the House plan,” said Terry Forsyth, a lobbyist for the Kansas-National Education Association.

But supporters of moving to a 401(k)-style plan argue the state can’t afford to sustain its traditional plans indefinitely. GOP Gov. Sam Brownback predicted last week that even a study commission would recommend at least offering a 401(k)-style option to new hires.

Both chambers’ proposals do commit to higher annual state contributions to KPERS. The Senate’s bill would boost the state’s annual contribution to KPERS by $23 million, starting July 1, 2013. The House plan raises the annual contribution by about $10 million.

And the Senate’s legislation also would require most public employees to pay a higher percentage of their salaries into KPERS.

The House plan not only would make the 401(k)-style plan mandatory for teachers and government workers hired on or after July 1, 2013, it would cut the future benefit of other workers who chose to stay in the state’s traditional plans.

The KPERS report said the increases in the state’s contributions to the pension system wouldn’t be permanent after the long-term funding gap began to close. Under both the Senate and House plans, the state and local governments ultimately would spend less through 2033 than it if made no changes in the pension system and tried to close the funding gap with only higher contributions.

The report said ultimately, the state and local governments would save $3.6 billion on its contributions through 2033 under the Senate plan and about $2.4 billion under the House plan.

Comments

Paul R Getto 2 years, 12 months ago

Kleptocracy, it is, government by thieves, brought to you by the C-Street Cult and Sam's muscular jesus. http://www.yuricareport.com/PoliticalAnalysis/GodsSenatorBrownback.html

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verity 2 years, 12 months ago

"First they eliminate the private sector pensions, then convince the workers that it's unfair that anyone else still has a pension using their tax dollars, then cut the public sector pensions."

Exactly.

Set us against each other while they rob us blind.

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William Weissbeck 2 years, 12 months ago

First they eliminate the private sector pensions, then convince the workers that it's unfair that anyone else still has a pension using their tax dollars, then cut the public sector pensions. We've come full circle. At one time Henry Ford saw the benefit of paying his workers a living wage, not just a market wage. Companies used to provide pensions so that employees shared in the profits. Companies recognized a larger obligation to society and their workers that it made more sense to have forced large group savings. After all, corporations didn't want a socialist business model. Now they've cut their obligations, want to further cuts their tax obligations and just leave it to the workers to fend for themselves. It's every man to the life boats. By the way, in another story, the GOP wants to cut income taxes to zero. How exactly then does money magically appear to fund the KPERS shortage? Lewis Carroll couldn't have written better dialog for the Queen of Hearts.

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lawslady 2 years, 12 months ago

Correct jafs. The Legislature borrowed from KPERS funding levels, over the years, to pay for other things. The result is a mammoth unfunded liability. Meaning the state owes a bunch of people a bunch of money. Now compound that unfunded liability problem with the fact that there are now fewer employees (and will continue to be fewer employees as long as populations shrink) contributing into the system. The Ponzi scheme that is present in most social subsidy systems fails when the number of people contributing is less than the people taking out. Thus, the Legislature is faced with two issues; How to pay the promised money to the defined benefit (DB) participants in KPERS and how to keep more debt from piling up. Answer? The 401K plan (Defined Contribution = DC) whereby no promises are made for the distant future and the government workers risk the market failing, just like everyone else. Sounds good until you factor in the unfunded liability problem. For every worker you take out of the "regular" DB KPERS plan, and put into the DC style plan, you decrease the amount of $ going into the DB system. So you will find another way to pay for the unfunded liability already existing and owed.

Unless more cuts are made elsewhere, or more revenues come in from elsewhere, the state will need to go bankrupt to escape all the debts it currently owes. That won't help anyone. Unless of course you like living 1931 Depression style.

And meanwhile, the folks who are the MOST excited about a 401K style state retirement plan? The private companies who sell these products. They are circling like sharks in a pool full of blood. Thus,

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Brent Garner 2 years, 12 months ago

The problem with every defined benefit plan--KPERS is one--that I have seen is the unrealistic assumption made in the plan as to investment performance. In my accounting classes I have observed that most plans make an assumptive 8% average annual rate of return even though actual investment experience by that company does not meet that target. The result is a growing divergence between what is promised based on the 8% and the asset base to support which is driven by the actual rate of return. Perhaps if the assumption of 8% were modified to something more realistic the gap would eventually close. But, left as it is, the gap will inevitably continue to grow.

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Fred Whitehead Jr. 2 years, 12 months ago

I (was) retired last October. I have some (fortunately not all) my retirement funds in a company 401K. I still do not have access to my 401K funds. It seems there is (so I am told) some sort of federal law that you cannot receive 401K funds from an account that the employer still owes a distribution to. Distributions from this employer occur once a year and that has not occured yet and no one seems to be able to tell me when or if that distribution will occur. Result, a significant part of my 401K funds are locked up in this bureaucratic mess.

DO NOT go to the 401K system, you may find yourself in similar circumstances, retired, but unable to access your money. No one at this company bothered to explain these details to me.

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Paul R Getto 2 years, 12 months ago

"But above all, the fact is the Legislature refused to appropriate the state's contribution to KPERs. If you don't put the funds in - as promised - then there's nothing there to grow." === BINGO! This one wins the daily prize. In the 1990's, when the Leg was cutting taxes like mad, not funding KPERS and promising us a thousand economic flowers would bloom as their ideology demands, they were setting up the state for a crash. Now they have it, the rich are broke and the poor and middle class must pay. If the R's theories were correct, we've had enough tax cuts in the last 15 or so years that we should be living in an economic utopia by now. There is a reason this means "nowhere' in Greek.

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seriouscat 2 years, 12 months ago

HMMM. Grasshopper says remain leery of the US stock market...no more Glass Steagall, foxes guarding the hen house etc...

there's a reason for such a big push towards dumping billions of retirement dollars into the market...financial instruments are the lollypop and retirees are the babies. They ain't no where close to done robbin people yet.

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just_another_bozo_on_this_bus 2 years, 12 months ago

The rich say they need their tax breaks, so retirees must pay.

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Phillbert 2 years, 12 months ago

There is a long-term deficit in KPERS. Kansas House Republicans' solution? An action that will make it even harder to close that deficit. Brilliant.

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ResQd 2 years, 12 months ago

Does anyone know if you were to retire before the 2013 deadline, if you will get your full retirement benefits, or will it be cut?

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strongarmcrunch 2 years, 12 months ago

You want to make a investment for the future? Buy farmland.

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strongarmcrunch 2 years, 12 months ago

Putting your savings in the US stock market is the wrong thing to do. The Market is fundementally broken, crooked to the very core, heavily manipulated, and ungoverned.

I would like to see a retirement plan that helps fund state and local investments.

Maybe these failing and faulty GOP members of the Kansas House should have thought about financial issues when it came to sending their guards to Iraq on a very dubious, unfounded invasion and occupation overseas. Maybe they should not have believed the Bush lies. Maybe they should have protested Bush for bumping a lot of federal expenses onto the states. Maybe they should have put on their thinking caps for once and said NO to Bush, said No to the GOP and all political parties, and been more loyal to their state and the conditions within their state.

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Gary Denning 2 years, 12 months ago

We should agree to continue the current plan for those employees already in the system but scrap it for new state employees. In addition to the KPERS funding issues, the idea that teachers and others in their mid 50's should be allowed or even encouraged to retire is simply not realistic. They are still vital and have a lot to give to their profession but they are allowed to retire early, with full retirement (and of course they teach at a school 25 miles down the road while receiving their retirement).

This was a nice idea when it started but makes little sense in comparison to other professions.

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nativeson 2 years, 12 months ago

Defined benefit pensions plans are a thing of the past except for government and heavily unionzed industries. KPERS simply won't exist in the future without being seriously modified. At least the state is willing to take on funding issues that are clearly out of control and will not be brought back into line without significant modification.

Entitlement programs are nice when they are started, but they often become difficult to unwind once they have excessive cost. Defining a benefit for an employee based on age and years of service without consideration of market conditions will not work in this economy. Most workers have lost at least 5 years of retirement income in the most recent recession. To expect state employees to be made whole in these conditions on the backs of workers who fund the program is unreasonable.

This is not a breach of contract. It is renegotiating the terms of a contract to provide the best outcome for both parties. Something less than would have received in the future is better than receiving nothing at all. That is the state of underfuinding now with KPERS.

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average 2 years, 12 months ago

The Senate plan (KPERS as-is but crappier) is what will pass. There have been plenty of GOP majorities in both chambers with GOP governors in the past. If they wanted it to happen they would have. Years ago.

The problem, from their POV, is that you actually have to put money aside in trust for a 403b plan. You can't just put in future promises, like they do with KPERS contributions. And the legislature doesn't want to start having to fund plans like that.

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Keith Richards 2 years, 12 months ago

Who wouldn't want a 401k style retirement plan. If this passes, I would switch my benefits immediately, then I would get full control over their allocation between bonds, guaranteed, and mutual funds.

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jafs 2 years, 12 months ago

So, somebody who's worked for the state for their entire adult life will see their benefits decreased if they don't "voluntarily" change to a 401K program?

What ever happened to breach of contract? These folks have lived up to their end of it by working for the state - shouldn't the state have to live up to their end?

Something needs to be done to ensure the sustainability of KPERS, without question, but this seems like a very bad idea to me.

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