Topeka — The traditional pension plan for future and some current public employees would be eliminated and replaced with a 401 (k)-style system under a recommendation finalized Thursday by a state commission.
Proponents of the plan called it a responsible fix to a long-term funding problem in the Kansas Public Employees Retirement System.
“We made a major step forward,” said Sen. Jeff King, R-Independence. He said no future generation of Kansans will find themselves in the “financial hole that we are in today.”
But opponents said the proposal placed retirement risks onto public employees and would produce financially strapped retirees. Sen. Laura Kelly, D-Topeka, said she was “stunned” by the plan. “This is a recipe for disaster,” she said.
The recommendation goes next to the full Legislature. Gov. Sam Brownback, a Republican, has repeatedly said he supports a system that looks like the one being offered by the KPERS study commission.
Under the recommendation, KPERS employees, such as teachers and government workers, hired after June 30, 2013, and those workers not vested in KPERS by that date, would be enrolled in a defined contribution plan in which they would be required to contribute 6 percent of their wages. The state would contribute 1 percent the first year and increase its contribution by one-half percent each year until it reaches a maximum of 5 percent in the ninth year of work.
Currently, pensions are financed through contributions from employees and employers, as well as investments made by the system. Employees who have retired receive a “defined benefit” based on how long they worked and how much they made on average in the final years of employment. For example, a typical worker earning $40,000 a year who worked for 20 years will receive an annual pension of $14,000.
KPERS has more than 250,000 working and retired members and handles investments of more than $13 billion.
But a devastating downturn in investments in 2008 during the recession, plus years of the state failing to contribute sufficient amounts, has left the system with a long-term funding gap between assets and promised benefits.
Sen. Kelly, however, argued that a bill approved during the last legislative session provided the needed revenue in future years to put the plan in actuarial balance.
Converting to private-sector style retirement plans may be good for higher-paid workers but will leave low- and middle-wage employees with little to retire on, she said.
She said the state of West Virginia tried a similar conversion and found many employees were retiring with about $35,000 in total benefits. “You know what that makes them? That makes them poor. Who takes care of the poor and the elderly? The state,” she said.
But King said the transition better reflected the modern work environment where people change jobs more frequently. They will be able to move their retirement accounts to other jobs, he said. He said he believed public employees will benefit more under the proposed plan.
On another matter, the commission was unanimous in recommending elimination of a golden pension perk that Kansas legislators enjoy.
Currently, legislators, for purposes of calculating their state retirement benefits, are able to annualize their part-time salaries and expenses. This drastically increases their pension.
Commission member Rebecca Proctor said it wasn’t right to “slash benefits” to regular state workers, but preserve the legislative perk. “It is not fair or equitable … that their (state employees’) benefit is not nearly as nice as what the legislators get.”
Proctor, an attorney who represents the Kansas Organization of State Employees, made a motion to treat legislators the same as all other state employees under the proposed new system. That motion was approved unanimously, which included the votes of legislators who serve on the study commission.
The vote on the legislators’ pensions would prohibit them from annualizing their salaries and using expenses as part of their salary. It would also put them in the same proposed defined contribution plan and apply to current and future legislators, and those receiving benefits now.