Topeka 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.