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.