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Archive for Wednesday, December 7, 2011

Panel endorses 401(k)-style pension plan for state workers

December 7, 2011, 5:37 p.m. Updated December 8, 2011, 12:31 a.m.

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— A Democratic legislator serving on a commission studying Kansas’ pension system questioned Wednesday whether Republican Gov. Sam Brownback has been improperly involved in its deliberations just before it recommended starting a 401(k)-style retirement plan for new public employees.

State Rep. Ed Trimmer, of Winfield, raised the issue amid the commission’s debate over starting a new 401(k)-style plan, an idea Trimmer opposes and Brownback supports. Trimmer cited a report on The Wichita Eagle’s editorial blog, quoting Brownback from an interview with the newspaper’s editorial board, saying the commission will recommend such a change.

Later Wednesday, the commission voted 8-5 to recommend to legislators that the state require teachers and government workers hired after June 2013 to join a 401(k)-style retirement plan. Kansas Public Employees Retirement System plans now guarantee benefits up front, based on a worker’s salary and years of service, rather than tying benefits to investment earnings, as 401(k) plans do.

Brownback appointed five of the commission’s 13 voting members, and all five supported the move to a 401(k)-style plan for new hires.

Trimmer said Brownback’s role in the commission’s work ought to be examined to determine whether the state’s Open Meetings law has been violated, though he later said he wasn’t accusing the governor or fellow commission members of wrongdoing.

‘Already said before’

Both the governor’s chief spokeswoman and one of his appointees to the commission said the questions are unfounded.

Brownback has predicted repeatedly that the commission would propose a 401(k)-style plan for new hires or at least a “hybrid” between such a plan and the state’s traditional plans. The governor repeated that prediction in his meeting with The Eagle’s editorial board.

“The governor didn’t say anything he hasn’t already said before,” said Brownback spokeswoman Sherriene Jones-Sontag.

The debate over starting a 401(k)-style plan pits the governor and his conservative Republican allies in the GOP-controlled Legislature against Democrats and public employee groups that strongly oppose the idea. Supporters of moving toward a 401(k)-style plan contend the state can’t sustain traditional pension plans, but opponents believe such a plan will lead to less secure and less generous retirement benefits.

KPERS projects an $8.3 billion gap between anticipated revenues and the benefits promised by existing plans through 2033.

The law creating the commission this year also will increase the state’s annual contribution to KPERS and require some concessions of workers, but many legislators and commission members don’t believe it will close the gap. The commission plans to meet again today and must present its recommendations to legislators before they convene their annual session Jan. 9.

The Eagle’s editorial blog quoted Brownback as saying the commission would recommend switching to a 401(k)-style plan for new employees.

“How does he know that?” Trimmer said during the commission’s meeting Wednesday. “It does open up some questions.”

A longer story about the interview, published Wednesday, said Brownback told the editorial board he expects the commission to recommend such a change.

The newspaper provided a transcript from a tape of the interview Tuesday, in which Brownback noted the commission would meet and added, “I think they’re gonna recommend defined contribution system for new hires.” Defined contribution is a term for a 401(k)-style plan.

No inappropriate action

Edward Condon, of Leawood, an executive in a capital management firm appointed by Brownback to the commission, said he hasn’t been a party to any discussions or actions that would violate the open meetings law.

The plan endorsed by the commission was drafted by one of its co-chairmen, state Rep. Jeff King, an Independence Republican, who said after the meeting, “This was not drafted from the governor’s office.”

Legislators and public employee groups opposing a 401(k)-style plan contend its startup costs will divert resources from closing the KPERS long-term funding gap. To lessen those costs, King’s plan would start the state’s contribution at 1 percent for first-year employees, increasing it to 5 percent by their ninth year of employment; workers would be required to contribute 6 percent of their salaries.

But he acknowledged that his plan is aimed at providing financial stability for KPERS for decades, not narrowing the funding gap in the short-term.

Comments

geekin_topekan 2 years, 7 months ago

...and if the Publishers Clearing House would just pay off.

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JayhawkFan1985 2 years, 7 months ago

I find it absolutely amazing that teachers and state employees who by STATE LAW contribute 4% or 6% of their gross earnings to KPERS were not included on this Commission. The problem is the Commission was hand picked by people whose sole purpose is to dismantle state and local government including public schools all for the benefit of the Koch Brothers and other 1% people. Teachers and state employees are core members of the 99%. We need to protect their interests because they are us. The Brownback Great Leap Backward continues. I also hope and pray that those of you who are not teachers or state employees don't fall victim to the right wing propoganda that in a recession you can't hope for better. The fact is that many teachers and state employees have been paying into KPERS for decades and have a contract with the state that guarantees KPERS as part of their compensation package. I'll point out that teachers and state employees take home pay is below market rates. Their pension plan helps but doesn't completely equalize that. Government jobs are jobs too!

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kochmoney 2 years, 7 months ago

Of course they weren't included. And of course the panel was hand-picked to come up with this conclusion by the governor who publicly endorsed this conclusion. A conclusion that will probably cost the state a LOT of money.

Non KPERS state residents should be up in arms about this plan. It will leave KPERS severely underfunded when all the employees hired before 2013 retire. A pay as you go plan only works as long as new employees are paying as they go. What they've done is saddled our grandchildren with debt because they want tax breaks now.

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jafs 2 years, 7 months ago

The commission recommended the 401K plan for new hires.

So existing employees wouldn't be switched out of KPERS, if I understand it correctly.

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redfred 2 years, 7 months ago

Good luck on getting government employees with this type of plan. If I wanted to work under a a 401(k) I would go to work in the private sector where I could make more money to put toward retirement. The current retirement system is one of the reasons that you can get employees at less than the going rate vs. the private sector.

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Gedanken 2 years, 7 months ago

Actually, I do know some teachers that would love to use a 401k because the benefits provided by KPERS isn't that great. You really need to have a 401b on the side just ensure that you will be covered. They would happily convert if the state would give them their contributions plus a fair rate of return on each year they contributed. They won't do that though because it would seriously cost the state some cash.

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tomatogrower 2 years, 7 months ago

They didn't contribute to KPERS like they should; why do you think they will contribute to a 401K? The teachers and state workers are on their own here.

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Gedanken 2 years, 7 months ago

You are right about that. No argument here.

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kochmoney 2 years, 7 months ago

You know some teachers that are lousy financial planners, then. You need a lot larger of an investment in a 401k to get it to pay off as well as a defined benefit plan, and that whole "fair rate of investment" depends on the market when you invested. If they got back what the state did, they'd have lost at the casino.

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jafs 2 years, 7 months ago

KPERS benefits are excellent - it's (now) a defined benefit plan, which is secure and dependable, and the benefits are quite generous.

You can in fact withdraw your contributions, but of course you don't get any appreciation if you do so.

Why do you say they're not great benefits?

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ljwhirled 2 years, 7 months ago

Go ahead and move to the private sector.

I am sick and tired of the argument that municipal, state and federal workers are working for such sub-par wages.

It simply isn't true. Considering the working environment, public sector workers have a sweet deal. Hence the 99.8% employee retention rate.

In the private sector you are expected to work past 4:59PM, you are responsible for the outcome of your programs and you don't have the security of knowing that you can appeal every HR decision 10 ways from Sunday.

Nothing is funnier than sitting in the lobby of the Lawrence City Hall at 4:50 and watching the staff roll out. By 4:59 only a few upper managers are anywhere to be found.

Will you make more money moving to the private sector? Maybe. if you are good. But, if your programs fail to make money or contribute to the bottom line you will be out on the street.

Many, many public sector workers that I have worked with wouldn't last 1 week in the private sector. The pace is too fast and the organizations are too outcome oriented.

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bear1956 2 years, 7 months ago

It is simply true. I have worked in both public and private sectors. In the private sector I made 25% more. The pension plan helped to offset the salary difference. I have worked with many private sector workers who would not make it one week in the public sector. I'm sick and tired of people like you. If you don't like the benefits you get from the government your free to decline them. Maybe you should go and live in Tennessee where the for profit fire department watches your house burn because you didn't pay your protection fee.

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dinglesmith 2 years, 7 months ago

You really need to learn more about what you're talking about.

Hourly workers - be they private or public - are paid for time they work, even beyond the normal workday. Frequently at a higher rate. Asking them to work off the clock is unethical at best and most likely illegal in both the public and private sector. So, hourly workers leaving at 5:00 is exactly what hourly workers are supposed to do. If they do not and they are public sector employees, they are paid for that extra work and it comes out of your taxes. The upper managers you refer to are likely salaried and are not owed overtime if they work extra hours. That's why they're salaried.

Your comment about HR is equally ignorant. State and federal workers are not covered by many regulatory bodies like OSHA that protect private sector employees. Don't get me wrong, I hate OSHA with a passion. However, with regulations like OSHA private sector employees have more avenues to pursue with HR than public sector employees, not fewer. As public sector unions are weakened, even fewer avenues for recourse will be available for hourly public workers. Love them or hate them, HR is HR whether public or private and you can appeal to them just as effectively in both sectors.

Your last comment is logically vacuous. I watch people get hired away from the public sector on a regular basis. The latest received a hiring bonus higher than her public sector annual salary. They don't come back and they remain employed. All of them. That would suggest that your generalization that public sector employees would not survive in the private sector is wrong. Why in the world would the private sector hire them away if they are such awful workers?

One last question. Where did you get your 99.8% retention rate figure? I'd love to look at the data behind it and how it was calculated. Only 2 in every 1000 public sector employees leave their jobs? Given the copious use of proof by vigorous assertion in your original posting, I suspect you just made it up. Shame on you if that's true.

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kochmoney 2 years, 7 months ago

Obviously you haven't worked the right private sector job, and you haven't seen the wrong public sector job. There are fast-paced, high stress jobs in either sector. I've also seen plenty of private sector employees who were obviously phoning it in and seemed immune to disciplinary action, and if anyone has a large enough company, the HR department is always embroiled in some red tape tangle involving appeals and threatened lawsuits.

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verity 2 years, 7 months ago

Remember when the stock market tanked and our 401Ks went pufft? Remember how the people who tanked our 401Ks received huge bonuses while we had to defer our retirements? I think a lot of people must be too young to remember that.

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verity 2 years, 7 months ago

Follow the money. Who does it benefit for the state to change to a 401K plan?

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tomatogrower 2 years, 7 months ago

The big corporations of course. They need that investment money to pay the big bucks to their executives. You know, the ones who run the businesses into the ground?

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kochmoney 2 years, 7 months ago

Brownie's investment banking friends. Some of whom were sitting on the panel that made the decision.

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overthemoon 2 years, 7 months ago

And like other outsourced financial services the state 'saves money' on, this will likely be administered by some big out of state banking/financial services corporation. Who will take their profits and spend them somewhere else.

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kochmoney 2 years, 7 months ago

But of course. And when the casino goes bust, it will be oopsies for all the teacher retirements. Hope everyone stocks up on cat food.

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Ken Hunt 2 years, 7 months ago

I think you mean a 403b plan. Any plan should have fees of 1% or less on investments. Too often retirement plans charge from 2-5.5% front end fees. Many plans also include 12b-1 fees which take another .25% when you drawn down your own money. I wonder what plan elected state representatives have? Be careful...never trust an investment advisor who represents an investment company.

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texburgh 2 years, 7 months ago

At least Senator King won't have to worry. He's already vested in his super-annualized KPERS defined benefit retirement plan. While his proposal all but eliminates a retirement plan for new employees and those who have not yet vested and puts the benefits at risk for all the other active employees who have vested, he doesn't have to worry. The legislature voted themselves in a super annualized benefit, paid fully by the state. No, don't worry about them. You can be sure Jeff King and his ilk will take care of themselves.

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kochmoney 2 years, 7 months ago

The Kochs have already taken good care of him on the campaign trail as one of his top donors, and I'm sure he's got prospects after he leaves, beefed up KPERS perks or not. Fear not, he'll continue to work against the best interests of people like his parents while using them as a shield.

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William Weissbeck 2 years, 7 months ago

I'm not the smartest guy in the room, but the last paragraph raises a ton of questions. One, employees will be required to contribute 6%? In the private world 401(k)'s are voluntary. While financial planners recommend that workers should save 10% toward their retirement - that assumes a 5% contribution, 5% match. And why not a full match from year one? The state is taking advantage of the new normal where workers will have 3-4 or more jobs in their working years. Which financial services company is going to be bidding for this juicy 6% contribution? If the states is only going to match at an initial low rate, maybe the employee can invest his or her money with someone else for a better return. Often you go with your employer's crummy plan, because it is offset by the matching contribution. Also, keep in mind it wasn't the state employees that cheated the system. It was the tax payers through their elected representatives. The tax payers cannot claim the high moral ground - they can only plead circumstances beyond their control.

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average 2 years, 7 months ago

One notable difference between a private-sector 401(k) and the public-sector equivalent 403(b) is that the latter can have mandatory contribution levels. A lot of (more than half by now?) employees at KU, K-State and the other regents schools are unclassified and faculty who've been on a 403(b) system for years. The regent's plan is a mandatory 5.5% employee and a 8.5% employer super-match. Which is stellar.

Very likely to be the same managers who've bid on the regents plan and the state's voluntary defined-contribution. TIAA-CREF (theoretically non-profit) and ING (mega-multinational).

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William Weissbeck 2 years, 7 months ago

OK, I understand the required contribution, but why 6 when the state is matching 1? TIAA would be an excellent choice, but let's see. Many states' 529 plans went nowhere because of overpriced, poor investment choices.

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mloburgio 2 years, 7 months ago

Comparing pensions

A legislator retiring with an annualized pay of $85,820.52, and with 10 years' service, would have an annual KPERS benefit of $15,018.60, for a monthly benefit of $1,251.55, according to KPERS. If the retiring legislator had 20 years' service, the annual benefit would be $30,037.20, and monthly, $2,503.10.

The News asked some KPERS retirees about their pension benefits. Their answers varied widely.

A state employee who was a supervisor for juveniles on probation retired after 34 years with an annual benefit of about $25,000. A municipal wastewater treatment plant superintendent, with 24 years' service, estimated the earned benefit at $2,300 to $2,400 monthly.

A state social services worker in a supervisory role retired in 1995 after 15 years and draws a monthly KPERS benefit of $524. That is equal to the monthly benefit for a county-level commercial appraiser who retired at 65, vested at nine years with KPERS.

'Insult'

Kathy Mendenhall, a public speaking instructor at Hutchinson Community College and past president of the Hutchinson National Faculty Association, had not been aware of the annualized pay formula for legislators.

"Oh, wow," she said.

"Teachers work so hard for their pay. We give our heart and souls to our job," Mendenhall said. "There's a level of insult to our profession when those kinds of things happen."

"I think it should be fair and equitable for everybody, and I don't think that one group should receive any kind of preference over another," said Jane Carter, executive director of the Kansas Organization of State Employees.

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mloburgio 2 years, 7 months ago

Kansas Legislator Pensions Inflated More Than Ten Fold

The average Kansas legislator with 20 years in the Capitol as of 2011 is eligible for a $29,162 annual pension if he retires at the end of this year. That’s more than ten times what he would receive if the pension was calculated just on salary. Legislators are the only classification of Kansas public employee that can draw down benefits based on a annualized salary.

Kansas Legislator example

Salary: $7,979

Inflation #1: Based on 372 day year = $32,982

Inglation #2: Include $123 per diem (also for 372 days) = $45,756

Inflation #3: Include payments for expenses while not in session = $7,083

Total salary for pension calculation: $83,216

Government employees enrolled in KPERS and hired before July 1, 2009, make a 4 percent employee contribution. State employees hired after that date contribute 6 percent.

Legislators’ make the same percentage contribution but it is based on their annualized total pay and expenses of $83,216. The contribution is 42 or 65 percent of their actual $7,979 annual base pay only. http://kansas.watchdog.org/7604/kansas-legislator-pensions-inflated-more-than-ten-fold/

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Alceste 2 years, 7 months ago

It "they're" smart, they'll offer a rather attractive incentive to get existing KPERS members to switch over to the this new "hybrid plan". While "they" won't attract the R.O.A.D. Warriors within KPERS (Retired On Active Duty), they might just attact more "middle age" and "younger" types and persuade them to leave KPERS for the new 401(k) "style".

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average 2 years, 7 months ago

They simply can't afford to make it too 'sweet'.

One of the few states to have done this was Michigan in 1997-98 (yes, union-Dem Michigan has been DC-only for 13 years). But, this was at the height of the tech bubble economy and the state had been making large enough investments that they could pay out the actuarial present-value (i.e., employer contributions... there hadn't been employee contributions to that time) to anyone who wanted to jump from DB to DC. Even with a little 'sweetener', only about 5% made the jump.

In Kansas 2011, KPERS simply doesn't have the cash to pay actuarial value to all its participants. Lousy returns and underfunding leave it in a partially pay-as-you-go position. If, say, a third of KPERS participants jumped, they'd have to wipe out their investments to fund the DC plans, and do it pretty much immediately.

I'm not sure, if this does happen, that there will be any DB-to-DC option for current KPERS. Or, if there is, it may only be on the 'accrued value' (the 6% employee contribution alone with some small interest payments), which basically no vested member would take.

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