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Archive for Wednesday, March 23, 2011

Kansas Senate approves bill addressing pension woes

March 23, 2011, 11:16 a.m. Updated March 24, 2011, 12:32 a.m.

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— Legislation to create a new 401(k)-style pension plan for Kansas teachers and government workers and cut the future retirement benefits of those who won’t switch won first-round approval Wednesday in the state House.

The bill advancing on a voice vote is the most sweeping proposal for changes to the Kansas Public Employees Retirement System being considered by legislators this year. GOP leaders expect the House to pass it on another, final vote, probably Monday.

The House debate Wednesday on its plan came the same day the Senate approved its own but less ambitious plan on a 35-4 vote.

Lawmakers are attacking the forecast $7.7 billion gap between the projected long-term revenues for KPERS and the benefits promised for the next several decades to teachers, judges, police, firefighters and other government workers. The traditional KPERS plans guarantee benefits up front, based on an employee’s salary and years of experience, rather than having them determined by investment earnings.

Negotiators for the House and Senate are likely to draft the final version of the pension legislation. Both chambers’ plans increase the state’s annual contribution to KPERS, starting July 1, 2013. The House bill would boost the contribution by $10 million, while the Senate measure includes a $23 million increase.

The Senate plan would require public employees to pay a larger percentage of their salaries into the pension system, but it also would give most a modest increase in their benefits in exchange. The senators’ measure is in keeping with many state officials’ long-held views that Kansas law and past court decisions limit how far the state can go in imposing concessions on public employees.

The House bill goes against that conventional wisdom. It would require teachers and government workers hired after July 1, 2013 to join the new 401(k)-style plan. It would give other employees the option of joining, but if they didn’t, the state would change how it calculates their future benefits — lowering them by $3.7 billion over two decades, according to one state estimate.

But supporters of the bill said that after a decade, the pension system will be back in balance, so that the state’s yearly contributions and KPERS investment earnings will match the annual revenues needed to cover benefits going forward.

“I fear that we’ll have to share the burden across many of us,” said Rep. Steve Johnson, an Assaria Republican who serves on the House Pensions and Benefits Committee. “There is not a painless solution to a painful problem.”

The House bill originally didn’t include provisions to create the new 401(k)-style plan, but members voted 74-44 to add them.

“It makes it a comprehensive bill,” said Pensions and Benefits Committee Chairman Mitch Holmes, a St. John Republican.

The House plan is likely to face strong opposition from public employee groups. They’ve resisted proposals to cut future benefits or to require workers to contribute more to the pension system. They strongly oppose efforts to move the state toward 401(k)-style plans, saying the change would sacrifice employees’ security in retirement.

Comments

somedude20 3 years, 9 months ago

So what is to say that you put more money into Kansas Public Employees Retirement System and in ten years they say no, wait, we can not pay you what we agreed to, you are SOL? Look at all of the pilots who have lost their retirement due the airlines changing the rules of the game while in play. I think this stinks and I am not even a state worker

yankeevet 3 years, 9 months ago

trade the measely pension for health care and food stamps; i already have a tent down by the river...............

naturalist 3 years, 9 months ago

"But it would also increase the state's annual contribution to the Kansas Public Employees Retirement System by $23 million."

But the problem is that the state hasn't been making its contribution for years. Robbing from $ due to state employees to pay other bills. Let's just hope these employees can at least get back their own 20-30 years of contributions when they retire, even if there is nothing there from the state.

douglas6280 3 years, 9 months ago

I would be happy to get my 21 years of money I had to put into KPERS and handle my own retirement. I do not trust government to handle my money / finances.

jafs 3 years, 9 months ago

You can take that money if you like - just stop working for a KPERS affiliated employer, and withdraw your contributions.

Of course, I don't think you get the matching funds that your employer may have paid into the system.

pittstatebb 3 years, 9 months ago

Jafs is correct, you will only get your interest (if you are vested). KPERS IS a good retirement tool if it survives in its current form.

You will get approximately 50% of your FAS for life after you retire. Just for arguements sake, lets say your FAS is 100k (an easy number to use). If you retired with 85 points, at age 55 with 31 years of service your amount is 52k a year. Now lets assume that your wage has grown by 2.35% over your 31 years of working so your starting salary would have been about 50k. So you would have paid 4% a year for 31 years in contributions. Now lets put that into the market with a 6% average yearly rate of return and you would have about 234k in retirement savings. That is 4.5 years worth of your KPERS retirement (of course your money you are not spending will continue to grow or decay depending on your risk). If you averaged 8% return, you would have had 337k in savings or 6.5 years of KPERS retirement at 10% 493k or 9.5 years of KPERS retirement.

Now remember, you are 55 and your life expectancy is somewhere around 78, so you will be broke by death unless have other savings like SS (which of course you better).

Dave Trabert 3 years, 9 months ago

Add in a matching contribution from an employer and you have a good comparison of private sector and government retirment plans. Let's say the employer put in 4% each year to match the employee contribution, which is about as good (or better) than a lot of private sector employees receive. The private sector employee's retirement package would be worth about $450,000; if that had to last over 23 years, the retiree could withdraw about $19,000 per year plus Social Security and pay state income tax on the full pension. The government employee would have an annual pension of $54,250 for life ($100,000 X 1.75% X31), would not have to pay state income tax and would also receive Social Security.

Sure, it would be nice if everyone could have generous pensions but someone has to pay for it. How is it fair for the majority of taxpayers to be expected to pay for benefits that, in this example, are at least three times greater?

pittstatebb 3 years, 9 months ago

Which is why we (the KPERS employees) need to be paying in more than 4% and we need to be working longer (just as long as the state and KPI realizes that requiring teachers to work longer "should" increase base state aid due to higher salaries for said workers).

It does not negate the fact that a defined benefit plan insulates workers (both public and private) from market swings that can severly deplete retirement savings if a worker is caught vulnerable late in their working career. Plans that provide a better retirement should cost more, that cost just must be reasonable. 401k's are not good retirement vehicles (especially in the private sector as the employer does not require contributions to most plans and has little incentive to entice workers to contribute more). The research is out there and yes it all comes done to workers not making the right choice, but as we all know you cannot legislate a fix to ignorance just morality (sorry that last bit was just too hard to overpass).

notanota 3 years, 9 months ago

If KPERS employees are paying a higher mandatory contribution and required to work more years for benefits, they also need more competitive pay to start with, not just for the extra years of experience. And don't early retirees end up collecting less in benefits, since they end up with a lower FAS? It would seem like they would.

pittstatebb 3 years, 9 months ago

I agree and starting average salary has gotten much better (at least for teachers) since the Montay decision. Personally, requiring teachers to work longer would probably cost the state more (have not played with numbers, but this just seems to be common sense) due to higher salaries than a new hire vs the cost of increased years of retirement that is spread across the state, past employees and future employees.

Each additional year worked yields an additional $69 per month to the estimated monthly benefit (that is straight from my last KPERS statement). So as it would probably depend on how much money you need for retirement as to whether it would be better to retire at 55 or 60 (with an additional 4140 a year) or at 65 (with an additional 8280 a year). Most teachers I know that do not retire at 85 points either cannot live with 50% of their salary (outstanding mortgages ect.) or simply are not ready to give up their working life yet.

notanota 3 years, 9 months ago

Oh look, everyone! It's our favorite paid Koch industry spokesperson.

I don't know how the Koch brothers handle your retirement plan, but my private retirement plans have always been voluntary, tax sheltered contributions, rather than the mandatory, taxed contributions for KPERS. I suspect the voluntary nature is one of the problems, as people squander their youth and don't start making payments as soon as they can.

A private sector employee could earn a comparable retirement package by wisely choosing his/her investments (mine are a balanced mix of stocks and bonds that I periodically rebalance) . You could also start a supplemental Roth IRA with some of those higher than public sector wages, and then you'd get a partial tax-free retirement benefit, too.

Out of curiosity, I did one of those online retirement calculators based on my current age and earnings, a 4% contribution and employer match, and a desired income of $54k per year for retirement at age 58, and it said that I had an 88 percent chance of achieving this and only needed my investment income to rise 9% each year. That was without a separate Roth contribution of less than $20 a month, which put it at a 93% chance. Go me. I guess I can retire early like a public sector employee, even on those higher private sector wages.

commuter 3 years, 9 months ago

Sure Eileen, if you get a 9% ROI. You should quit your job & be an investment advisor. Go ahead and do it. I would like to be one of your clients as long as you can guarantee me a 9% ROI.

By the way, what do you have against Dave? Did he do something to you or not pay attention to you when were younger? Just curious... It seems like your comments about him have some deep emotional connection?

notanota 3 years, 9 months ago

What part of "88% probability" did you not understand? I wouldn't hire any investment adviser that made me a guarantee of a certain ROI. Historical trends, future results, yada yada. However, it is, in fact, something that is achievable, even without the additional Roth IRA, which requires much less of a ROI to meet the final goal.

From January 1970 to December 2008, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 9.7% (source: www.standardandpoors.com). Yes, I'm ignoring the Great Recession. An aggressively balanced portfolio could grow large enough for retirement at age 58 (and then would need to b shifted to a much more conservative balance.)

Even if you don't meet the goal of retiring at 58, there's still the extra seven years to get that nest egg built at a considerably lower required ROI for the risk averse. I'm guessing I won't feel like quitting at age 58, but maybe I'll want to enter into a less profitable second career. It's nice to know I could take on a lower pay, lower stress job and not ruin my retirement.

Personally, I think the 401k system sucks, and I'd rather see it all move back toward defined benefits. Getting that early retirement depends way too much on the investing prowess of the individual and the market trends in the years leading up to their retirement. It unfairly advantages the rich over the working class, since the working class don't have the disposable income to spare for a nest egg, nor do they have the cushion to whether an economic downturn like we've just experienced.

As for Dave? I'm sure he's a swell person, but he's a paid spokesperson for a Koch propaganda machine, so all of his information should be viewed in light of his employer's agenda.

Jan Rolls 3 years, 9 months ago

Poor state employees these jerks didn't even kiss them first.

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