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Archive for Monday, March 7, 2011

Kansas House committee considers 401(k)-style pensions for teachers, government workers

March 7, 2011, 2:43 p.m. Updated March 8, 2011, 12:41 a.m.

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— Kansas legislators waded Monday into a debate over having the state move toward a 401(k)-style plan for teachers and government employees to attack the long-term funding problems of their pension system.

It’s not clear how much support exists for the idea, included in legislation before a House committee.

The president of a free-market, Wichita-based think tank and the chairman of a Topeka building construction supply company urged the House Pensions and Benefits Committee to endorse a bill making the change for teachers and government workers in 2013. They say the state and its taxpayers can’t afford traditional pension plans.

Groups representing teachers, government workers and retirees oppose such a change, and their representatives told the committee that moving toward a 401 (k)-style plan wouldn’t solve the underlying problem facing the Kansas Public Employees Retirement System, or KPERS.

The pension system faces a projected gap of nearly $7.7 billion between its anticipated long-term revenues and the benefits it has promised current and future retirees over the next several decades.

Chairman Mitch Holmes, a St. John Republican, is not sure when the committee will debate the bill, but said it’s significant that the measure has received testimony favoring it. He said in the past, only public employee and retiree groups have weighed in on pension bills, and it’s always been to oppose changes that don’t involve putting more money into the system.

“I think that there are multiple actions that need to be taken, and this is just one component of it,” Holmes said.

KPERS covers 73,000 retirees and nearly 161,000 active public school, state and local government employees. State officials have been concerned about its long-term health for about two decades, but investment losses sustained during the Great Recession widened its funding gap and sparked interest among some legislators in considering 401(k)-style plans.

Senate President Steve Morris, a Hugoton Republican who’s also chairman of a special committee on pensions in his chamber, said the idea will receive serious consideration.

“There’s a lot of interest from the governor and others,” he said.

Republican Gov. Sam Brownback hasn’t publicly endorsed the bill before the House committee, but spokeswoman Sherriene Jones-Sontag said, “Everything should be on the table.”

Kansas’ public pension system currently guarantees an employee’s benefits upfront, basing them on years of service and a worker’s salary, rather than having benefits based on investment earnings. The bill before the House committee would close the state’s traditional plans to teachers and government workers hired after July 1, 2013, and start a 401(k)-style plan for them.

Supporters of the change argue that the state — like many private businesses that have moved to 401(k) plans over the past few decades — realistically can’t sustain traditional pension plans. Ken Daniel, chairman of Midway Wholesale, the Topeka construction supply company, said it’s not fair to force taxpayers to keeping pouring money into traditional plans for government workers that aren’t available to private-sector workers.

“The people who are public employees need to start taking straws off of the camel,” Daniel said.

And Dave Trabert, president of the Wichita-based Kansas Policy Institute, said the state faces “catastrophic” increases in its pension contributions if it tries to close the gap in long-term funding without shutting off the current traditional plans. He said the promises made to employees and retirees will keep getting more expensive.

“They are crushing governments,” Trabert said. “This is the first step.”

The argument resonated with at least a few of the Republicans who hold a majority on the House committee.

“My old Boy Scout first aid days — you’ve got to stop the bleeding,” said Rep. John Grange, an El Dorado Republican.

But employee and retiree groups, as well as some legislators, are skeptical. They argue that a 401(k)-style plan offers less secure benefits.

“Do you really want to take your retirement security and gamble it on the stock market?” said Jane Carter, lobbyist for the Kansas Organization of State Employees, after the hearing.

Critics also note that if the state starts a 401(k)-style plan for new teachers and government employees, it still must close the funding gap in the existing plan, and they suggest the cost of contributing to two separate systems will be even higher.

“It creates two systems, both of them weak,” said Terry Forsyth, lobbyist for the Kansas-National Education Association teachers’ union.

Comments

kugrad 3 years, 5 months ago

If the state will match a percentage of employee contributions to the same typical percentage of total salary that the private sector matches, and let the contributions come out pre-tax, then this sort of system could be at least worth looking at. If it does not include an employee match, then it is just an attempt to cut benefits and strip one of the few attractive things about working in the public sector.

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werekoala 3 years, 5 months ago

Look, the contributions of current workers pay for the benefits given to retired workers. If new workers stop paying into the system, then taxpayers will be on the hook for the whole thing until everyone hired before 2013 dies. It's a terrible, irresponsible idea.

It's a terrific way to manufacture a fiscal crisis a la Governor Walker, though. Not suprised some of the Representatives from Koch County are behind it...

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Dave Trabert 3 years, 5 months ago

Taxpayers are already on the hook. Workers hired prior to 2009 contribute 4% of pay; it's 6% for those hired. The actuarially required employer rate based on market value of assets is 15.26% and climbing. That's one of the big problems with defined benefit plans - the employee puts in a fixed amount and taxpayers put in whatever else is need to provide a fixed (defined) benefit. Putting new workers in a defined contribution plan has no impact on current workers or retirees.

The unfunded liability based on current market value of plan assets is $9.3 billion but even that huge number is probably low. It's based on KPERS' assumption that assets will earn 8% per year going forward and even they are concerned that that might not be realistic. They recently said lowering the investment return rate to 7.5% would add another $1.3 billion in unfunded liabilities.

The cost of the current system is unsustainable, largely because plan benefits are unjustifiably high. While the plan was underfunded in past years, the impact on taxpayers would be similar regardless of when payments were made. If higher contributions were made in the past, taxes would have been hundreds of millions higher or spending would have been reduced by the same amount. The hardship of playing catch-up may be felt more severely, but even funding the plan sooner would have produced very negative consequences to taxpayers.

Assuming a retiree meets minimum age requirements and doesn't elect options to take one-time lump sum distributions or to have a partial pension continue to a surviving spouse, someone with 30 years of service retiring from the state/school KPERS plan would collect 53% of Final Average Salary (FAS) (30 times 1.75%); 35 years of service would generate 61% of FAS. There are no maximum years of service or percent of FAS for members of the state/school plan. The maximum % of FAS for KP&F members is 80% and for Judges, it's 70%.

An employee retiring under the state/school plan with FAS of $75,000 and 35 years of service would receive an annual pension of $45,938 in addition to Social Security benefits; a $50,000 FAS with 35 years of service would yield a $30,625 pension plus Social Security. KPERS pensions are also not subject to state income tax, which further increases the value. The total income tax benefit to KPERS retirees is estimated at $52 million per year.

All of this information comes from a new study just released, “A Comprehensive Reform of the Kansas Public Employees Retirement System” by Dr. Barry Poulson. It can be downloaded at http://kansaspolicy.org/ResearchCenters/BudgetandSpending/BudgetandSpendingStudies/

We also just posted pension distributions for 2010 by individual at http://www.kansasopengov.org/Retirees/tabid/793/Default.aspx

The highest distribution in 2010 was to a KP&F retiree from the city of Olathe, who received a one-time payment of $531,642 and an annual pension of $50,388 for total payments of $582,030.

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Alceste 3 years, 5 months ago

Incredible. A one time payment of $531,642 and every month thereafter $50,388.00?

And to think Glenn Deck, personally fought me tooth and nail because THEY (KPERS) didn't know current Federal tax code and the fact one could buy back years of service using 457 monies in a trustee to trustee transfer. They won too! Beat me out of $14K+ of CASH MONEY out of my pocket. Incredible.

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Alceste 3 years, 5 months ago

Sorry, the tears were in my eyes....$4199 @ month. STILL incredible. I gave 38 years of service to rescuing adults beaten in nursing homes; citizens wrongly placed in state mental "hospitals" (Larned, et. all), children beaten not only in their homes, but the foster homes and group homes (industry) said were placed in, blah, blah, blah; I paid my dues as far as I am concerned. I guess I AM guilty of not head bobbing and "playing the game" and I AM, most certainly, paying the price in my "golden years". spit

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somebodynew 3 years, 5 months ago

Dave - the only part of what you write that I have a real problem with is you say "in addition to Social Security benefits". While that is true, for those that took KPF you find out that Social Security cuts any benefit by a whole bunch (I think more than half) because we were in a DB plan and didn't pay in. Didn't seem to matter that I workied other jobs prior to, during, and after retirement and did pay into the system - they still cut it.

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Dave Trabert 3 years, 5 months ago

That may be why KP&F retirees can receive a maximum benefit of 80% of FAS vs. 70% for Judges. There's no maximum for the state/school plan but 40 years service yields 70%.

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kugrad 3 years, 5 months ago

Excuse me, but this is a public forum. Not a site for paid representatives of Koch industries and/or one of their surrogates, such as the Kansas Policy Institute, to pedal their wares.

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Alceste 3 years, 5 months ago

Facts are not refuteable, irrespective of where they come from. I'm glad to read what Dave_Trabert posts. It's numbers and not voodoo economic numbers.

SHAME on you, "Kugrad". Makes sense though.....the coupling of the name "Kugrad" with disgruntlment when the puppet masters behind the curtains are exposed.

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Olympics 3 years, 5 months ago

Wow. http://www.frequency.com/video/rachel-maddow-exposes-wisconsin-governor/3093697

‎"In January a Wisconsin court ruled that Scot Walker had invented a financial emergency to justify improperly firing the counties unionized security guards. He privatized their jobs and handed them over to a private, foreign and non-union company called Wackenhut..."

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Eride 3 years, 5 months ago

There is a reason that defined benefit plans have been dropped even by the blue chip corporations... they are too freaking expensive. This change is inevitable... might as well do it immediately and save ourselves some money.

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finance 3 years, 5 months ago

Pretty amazing. A lifetime of teachers taking care of your bratty, ill-mannered children only earns your scorn at the end of the day. Low salaries, miserable working conditions, ignorant clients with even more ignorant and even more ill-mannered parents--and then? You want to take away any vestige of a good life waited for over all those years. It's not the children's fault--they are behaving like their parents: stupidly and angrily and ignorantly. No one has respect for anything any longer.

This country is going down the toilet in a temper tantrum of rightwing madness. It will deserve its inevitable future. The rich get richer, and the poor get Koched. I simply wish all the nutcases would go back to Oklahoma and Florida. I'm sure even God is wretching. I was taught God loves everyone--I really doubt it.

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average 3 years, 5 months ago

It is a good idea in a general sense. Many KU employees ('unclassified') and faculty have been on a defined contribution plan for years.

The problem, as noted by werekoala above, is in the transition. Current KPERS benefits are largely paid out by current contributions by and on behalf of younger employees in the system. Any kind of transition, whether it's grandfathering existing workers onto KPERS, or figuring out a way to create 403b accounts from current KPERS accumulations, brings that day of reckoning for the underfunding problem closer to the present date. Which is exactly what politicians least want to do.

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Dave Trabert 3 years, 5 months ago

This plan only addresses new hires. Employers and new employees would make contributions to the new plan, but current employees and employers would continue to make contributions to the old plan. This new defined contribution plan only impacts employees hired after July 1, 2013. Contributions to the existing defined benefit plan would continue as scheduled before and after that date. Of course, the DB plan is still grossly underfunded and also needs significant reform. The new DC plan would effectively stop the bleeding of the DB plan by not allowing new hires to enter and make matters even worse. They still need to fix the DB funding issue, but if anything, the DC plan helps, not hurts, the DB plan.

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average 3 years, 5 months ago

Oh, don't get me wrong. It stops digging the hole. Good. But, it does bring forward the day of real reckoning on the DB side, which is why it will be a harder sell than you might think in the Statehouse.

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Bob_Keeshan 3 years, 5 months ago

" KPERS pensions are also not subject to state income tax, which further increases the value."

Why aren't KPERS pensions subject to state income tax? Because KPERS contributions are subject to state income tax.

But it is good to know the Kansas Policy Institute is in favor of double taxation.

Of course, Trabert also insists State of Kansas employees have benefits that are way out of whack with the private sector. Except for... http://www.usatoday.com/news/nation/2011-03-01-1Apublicworkers01_ST_N.htm#table

Kansas public employees earn, on average, $3,220 less than Kansas private sector employees do in wages and benefits combined.

As for Barry Poulson, he is not an independent expert. He is a renowned anti-defined benefit zealot whose previous research has been widely debunked. Last year he teamed with Koch water carrier Art Hall for a similar "analysis". It was an analysis that blamed poor investing, even though KPERS has far outperformed private retirement accounts.

In fact, had Kansas been in a 401(k) type system during 2008, the losses to retirees would have been significantly worse than the losses experienced by KPERS. It is almost as if this group isn't interested in protecting "taxpayers", their real goal is attacking public employees.

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Dave Trabert 3 years, 5 months ago

I hadn’t seen the USA Today gov’t / private sector comparison so I contacted the reporter and examined his facts. Very decent guy, BTW. Explained his methodology and sourced data set…wish all reporters did the same.

He used data from the State Personal Income data from the Bureau of Economic Analysis and cautioned that it “…generally understate(s) the value of public employee compensation in several ways.” The data only includes cash payments for retirement, social security and health care benefits. No other benefits are included. The cash piece is especially important in Kansas because government pensions are severely under-funded; most private employers have defined contribution plans that are funded up-to-date, so government retirement benefit would be significantly understated by comparison.

BEA employment figures combine FT and PT workers. Full time equivalent (FTE) data is available on a national level but BEA does not provide it for states. He said the national conversion to FTE raised average government pay and benefits by 27% but only 9% for private, and concludes that it’s therefore highly likely that this also would understate government averages in most states.

Another complicating factor is that BEA uses NAICS employment classifications, which only classify education administrators as government workers; other education workers are included in private sector by NAICS. Health care facilities operated by government are given similar treatment. He also said comparison of other employment data sets may indicate that some conversion may have been done but there is no mention of it in the BEA footnotes.

I also learned that he didn’t use everyone in the private sector for the comparison to government. Farm workers and proprietors weren’t included, which account for 27% of the full private sector work force. Using his same methodology and comparing the full private sector to state and local government flipped the numbers.

State/ Local government average = $44,803 Private sector average = $42,276

So even if you ignore the weaknesses in the data that understate the government average, it’s still higher than the full private sector according to BEA.

Sorry I couldn’t respond sooner, but I wanted to have the facts straight.

http://www.bea.gov/regional/spi/

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kugrad 3 years, 5 months ago

The cost of the current system is far from unsustainable. This is just prattle put out by those opposed to public employees having benefits and intent on dismantling as much government as possible, no matter how good it does.

A study done recently by Boston College showed that state pension plans make up about 3 1/2% of state budgets. A raise to 5% would completely eliminate all problems. Keep in mind that this raise would be much lower if the states had made the contributions they were supposed to make. The ones they had surplus monies to make easily, but chose not to make.

This is another example of trying to pretend that public employees are pigs at the government trough, just taking advantage of everyone else. It is easy to spread mistruths and make people turn against a scapegoat.

The state neglected its pension obligations. That makes funding them now harder, but it is an obligation.

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Alceste 3 years, 5 months ago

The more smarter states have already adopted a "two tiered" system, recognizing errors and this move includes even very strong UNION states. Hawaii is but one example: If EVER there was and is a strong Union state, it's Hawaii: And yet is Employee Retirement System understood what was necessary and moved forward with it's "hybrid plan", even offering incentives for "grandfathered non-contributory members" to join. See:

http://www4.hawaii.gov/ers/

Yes, yes, yes....there are still funding problems even in that state, but at least the Union as well as the state saw the handwriting on the wall. Want some other examples?

While many aspects of "the problem" are fodder for the UNION BUSTING RIGHT WINGERS, it all that way.

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cowboy 3 years, 5 months ago

It is the journalistic duty of a news organization to adequately identify sources. The Kansas Policy Institute is nothing other than a Koch funded website. Anything this organization proposes is tainted propaganda.

The LJW , who continuously reprints this drivel should step up to the plate and take the 12 seconds it took me to research who these ghost organizations are.

Dave Trabert is a paid troll ! Registered today to generate traffic on their bogus press releases which the AP and thus the LJW print blindly.

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nascar 3 years, 5 months ago

This is more propaganda paid for by the Koch brothers. KPI, AFP.... take a look folks.

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trinity 3 years, 5 months ago

thanks for that info, cowboy; i'd read about this issue on the topeka paper's website then jumped over here and read...i saw that trabert had been commenting on that paper too. i'm still just sitting here shaking my head-i'm a state employee with approximately 8 years of service left to go-maybe?! used to think my KPERS was stable...now, not so much.

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just_another_bozo_on_this_bus 3 years, 5 months ago

Why employee pensions aren't bankrupting states By Kevin G. Hall | McClatchy Newspapers

"From state legislatures to Congress to tea party rallies, a vocal backlash is rising against what are perceived as too-generous retirement benefits for state and local government workers. However, that widespread perception doesn't match reality.

A close look at state and local pension plans across the nation, and a comparison of them to those in the private sector, reveals a more complicated story. However, the short answer is that there's simply no evidence that state pensions are the current burden to public finances that their critics claim.

Pension contributions from state and local employers aren't blowing up budgets. They amount to just 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.

Though there's no direct comparison, state and local pension contributions approximate the burden shouldered by private companies. The nonpartisan Employee Benefit Research Institute estimates that retirement funding for private employers amounts to about 3.5 percent of employee compensation.

Nor are state and local government pension funds broke. They're underfunded, in large measure because — like the investments held in 401(k) plans by American private-sector employees — they sunk along with the entire stock market during the Great Recession of 2007-2009. And like 401(k) plans, the investments made by public-sector pension plans are increasingly on firmer footing as the rising tide on Wall Street lifts all boats.

Boston College researchers project that if the assets in state and local pension plans were frozen tomorrow and there was no more growth in investment returns, there'd still be enough money in most state plans to pay benefits for years to come.

"On average, with the assets on hand today, plans are able to pay annual benefits at their current level for another 13 years. This assumes, pessimistically, that plans make no future pension contributions and there is no growth in assets," said Jean-Pierre Aubry, a researcher specializing in state and local pensions for the nonpartisan Center for Retirement Research at Boston College."

Read more: http://www.mcclatchydc.com/2011/03/06/109649/why-employee-pensions-arent-bankrupting.html#ixzz1FyOsvpB8

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Jimo 3 years, 5 months ago

"Retiring Baby Boomers Find 401(k) Plans Fall Short" - WSJ, February 2011

The headline says it all.

401(k) plans have proven to be a disaster that will leave millions of people without sufficient money in their old age and burdens on the taxpayer. I'd guess that 4 out 5 people will exhaust their savings. That the Kansas House would want to initiate such a plan given the mountain of evidence showing how badly this experiment will end is the height of irresponsibility.

Send the ideologues home and hire an adult focused on practical, good government.

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Bob_Keeshan 3 years, 5 months ago

Nah, much better to pay your employees over $3,000 per year less than the average Kansas worker and then tell them they should be grateful to even have a job.

It's called running government like a business. Granted, that business is probably Enron but it is still a business.

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just_another_bozo_on_this_bus 3 years, 5 months ago

Yea, but all those lost investment dollars for people who actually worked for a living will be much appreciated by the Wall Street fat cats who crashed the entire world economy, but have somehow managed to shift all the blame for that to teachers in Wisconsin and elsewhere.

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