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Archive for Tuesday, December 13, 2011

Pension reform

Replacing KPERS with a 401(k) plan will take away a significant benefit for state employees, and may necessitate offers of better wages and other perks to keep qualified workers in the public sector.

December 13, 2011

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A recommendation to convert the state employee retirement system to a 401(k) plan seems like a reasonable move, but state officials need to realize that the pensions currently guaranteed by the Kansas Public Employees Retirement System are a significant benefit for state employees.

If the state is going to make its retirement plan more like those offered by private businesses, it also may have to provide salaries and other benefits that make state jobs more competitive with those offered in the private sector.

A state commission studying the KPERS situation recommended last week that teachers and other government workers hired after June 30, 2013, and those who aren’t vested in KPERS by that date, would be required to contribute 6 percent of their wages to a 401(k) retirement account. The state would contribute an amount equal to 1 percent of the employee’s salary and would increase its contribution by a half-percent each year until it tops out at 5 percent.

To its credit, the 13-member KPERS commission, including five state legislators, also voted to recommend that legislators be covered by the same retirement plan as state employees, which will represent a drastic reduction in pension benefits for state lawmakers.

The KPERS commission was formed to come up with a plan to deal with a long-term funding challenge for state pensions. The pensions are funded by contributions from employees and employers and, like all pension funds, fell on hard times after the economic downturn in 2008. The situation was made worse because of the state’s failure to keep up with KPERS fund contributions.

It’s essential, of course, that the state make good on its commitment to state employees who are vested in the current system. Many of those employees will tell you that the promise of a KPERS pension kept them in state jobs that didn’t pay as much as they could have made in the private sector. The state has promised them that pension, and they should receive it.

Going forward, the state also will have to deal with the fallout from the loss of the traditional pension fund. A 401(k) plan is more standard in today’s business world, but that means the state will have to compete with private business to get top employees. The portability of 401(k) funds also may mean that employees will be more willing to leave a state job in search of a better position in the private business. The state may find that some employees were more loyal to their pension benefits than to their jobs.

The 401(k) matching package being proposed by the state is more generous than what is offered by many private employers, and it is a sustainable model that will reduce the burden on state taxpayers to make up for any future investment losses in the KPERS fund. It’s true that the plan injects an element of risk into state employees’ retirement planning, but it also gives them more power over how their retirement funds are invested as well as more freedom to move to another employer if they wish.

It’s a real-world system already used by many employees in the private sector. Putting the state and its workers on the same footing with private business and employees doesn’t seem like a bad move.

Comments

Richard Heckler 2 years, 4 months ago

How can anyone trust Governor Brownback with their money after:

  1. The Reagan/Bush Savings and Loan Heist aka home loan scandal sent the economy out the window costing taxpayers many many $$ trillions (Cost taxpayers $1.4 trillion), Plus millions of jobs, loss of retirement plans and loss of medical insurance. http://rationalrevolution0.tripod.com/war/bush_family_and_the_s.htm

  2. Bush/Cheney Home Loan Wall Street Bank Fraud cost consumers $ trillions, millions of jobs, loss of retirement plans and loss of medical insurance. Exactly like the Reagan/Bush home loan scam. Déjà vu can we say. Yep seems to be a pattern. http://www.dollarsandsense.org/archives/2009/0709macewan.html

  3. Bush/Cheney implied more than ONLY 3 financial institutions instead of several were at risk so why $700 billion in bail out money? One of the biggest lies perpetrated to American citizens. Where did this money go? Why were some banks forced to take bail out money? http://www.democracynow.org/2009/9/10/good_billions_after_bad_one_year

What exactly did Sam Brownback do to stop any of the above while in Washington D.C.?

Has Sam Brownback called for an investigation and prosecution? Of course not!

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redfred 2 years, 4 months ago

The committee is suggesting that future legislators go under the new system. The current legislators will stay with the current "golden" retirement plan.

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littlexav 2 years, 4 months ago

KPERS contributions are taxed for state income tax purposes... if these contributions (for non-vested employees) are converted to a 401(k), I know that I for one am going to be asking for my taxes back! It's not my fault I won't be vested by 2013...

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Orwell 2 years, 4 months ago

Surely you don't think Governor Blowsalot wants competent state employees! How would he be able to prove his assumption that government doesn't work?

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TinmanKC 2 years, 4 months ago

Watch the votes on this closely. Any legislator who votes to keep their own pension plan instead of being on the same one as every state employee should be voted out of office. Actually, not sure why part-time legislators should get a pension from the state anyway.

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George Lippencott 2 years, 4 months ago

One of the things we need to think about is changes in remuneration to public employees. At one time a generous retirement program was an offset to relatively low incomes. In recent times we have increased salaries to almost parity with the private sector while continuing benefits that are greater (in many cases)than those in the private sector. I suspect it is inevitable that those benefits now come into question. You really cannot have it both ways.

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jafs 2 years, 4 months ago

How can this be more generous than private 401K's?

The state starts at a 1% match, and moves, very slowly to a 5%, over 9 nine years.

My understanding of private sector 401K's is that the employer matches what the employee puts in from the start - is that not the case?

If so, then private sector 401K's are better, especially for shorter term employees, no?

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RegularJane 2 years, 4 months ago

From what I have read, the State did not hold up the State's responsbility or funding of its share of pension cost. If the State didn't do that, what will guarantee that the State will do it with a 401k? Even if the state goes to a 401K, the State does need to figure out how to support what it has already promised.

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Keith 2 years, 4 months ago

"To its credit, the 13-member KPERS commission, including five state legislators, also voted to recommend that legislators be covered by the same retirement plan as state employees, which will represent a drastic reduction in pension benefits for state lawmakers."

I wouldn't be taking any bets that this makes it into the final plan.

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mloburgio 2 years, 4 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"

http://hutchnews.com/Todaystop/kpers-and-leg-2--2

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mloburgio 2 years, 4 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.

http://kansas.watchdog.org/7604/kansas-legislator-pensions-inflated-more-than-ten-fold/

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