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Archive for Monday, March 28, 2011

AP Analysis: Kansas lawmakers far apart on KPERS solutions

March 28, 2011

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— Kansas legislators agree that the state pension system’s long-term funding gap is a serious problem that must be tackled this year, but the dramatically different approaches being taken by the House and Senate could complicate efforts to settle on solutions.

Both chambers have plans that would require the state to increase its annual contribution to the Kansas Public Employees Retirement System to support the future benefits of teachers, judges, police, firefighters and other government workers. Both ask public employees to make some sacrifices.

But the Senate’s plan is in line with what has long been the conventional wisdom among most officials — that Kansas law and past court decisions prevent the concessions imposed on teachers and state workers from being overly one-sided. The House plan appears to go against that conventional wisdom, and some critics believe its passage would land the state in court.

The two chambers also differ in how quickly they want to move Kansas toward 401(k)-style plans for public employees. The House plan starts such a plan and makes it mandatory for teachers and government workers hired on or after July 1, 2013. The Senate proposal doesn’t rule out such a move but sets up a study commission to examine that issue and others.

KPERS faces a projected $7.7 billion shortfall between its anticipated long-term revenues and the benefits it has promised public employees over the next few decades, a gap known as its unfunded liability. A national report said last year that KPERS’ assets would cover only 59 percent of its long-term liabilities, giving Kansas the second-lowest percentage of any U.S. state, behind only Illinois.

It’s likely that House and Senate negotiators will start work this week on the final version of pension legislation. The Senate approved its plan last week, 35-4, and the House was expected to pass its measure when it takes a final vote today.

KPERS officials continue to analyze the two different plans, concluding so far that both appear likely to achieve balance in a decade, where annual revenues and investment earnings will keep up with the system’s promises for retirement benefits.

“They have about the same impact,” said Glenn Deck, KPERS executive director.

Public employee groups are resisting proposals that would require concessions from their members, such as cuts in future benefits or requiring workers to pay a higher percentage of their salaries into KPERS. They argue legislators and governors have simply shorted the state’s contribution for years, perhaps decades.

Senate plan

The Senate’s proposal would boost the state’s annual contribution to KPERS by $23 million, starting July 1, 2013, the most aggressive increase proposed this year. The House plan raises the annual contribution by about $10 million.

In revising current KPERS plans, the Senate increases employees’ contributions. About 131,500 teachers and government workers covered by KPERS pay 4 percent of their salaries to the pension fund. Under the Senate plan, that would increase to 6 percent by 2016, though those workers would get a small boost in their pensions in exchange.

Another 20,000 employees, hired after June 2009, already pay 6 percent of their salaries into the pension fund, and they’ve been promised annual cost-of-living adjustments in their benefits after they retire. With the Senate plan, they could keep the annual adjustments and pay 8 percent of their pay into the pension system, or forgo the future adjustments and pay 6 percent into the fund.

The GOP holds large majorities in both chambers, but the Senate plan, drafted by President Steve Morris, a Hugoton Republican, has bipartisan support. Public employee groups see it as reasonable, though the Kansas Organization of State Employees worries about the potential recommendations from the study commission.

“It does ask state employees to sacrifice a little, but it acknowledges that the heavy lifting has to be done by the Legislature,” said House Minority Leader Paul Davis, a Lawrence Democrat.

Dissenters in the Senate, all Republicans, thought the plan didn’t go far enough, and many House Republicans agree. Speaker Mike O’Neal, R-Hutchinson, said his GOP-dominated chamber is reluctant to create a study commission. Under the Senate plan, it would make recommendations to legislators by December, and they’d have until June 2012 to vote on its proposals.

“You can study these things to death,” O’Neal said. “In our view the time for action is now, not later.”

House plan

But the House’s proposals are eyebrow-raising — and inspire strong criticism from public employee groups. Its bill would change how pension benefits are calculated for teachers and government workers after July 1, 2013, giving them 20 percent less credit for each year of service after that date.

There is also the move toward 401(k)-style plans that base benefits on investment earnings — and in theory don’t accrue unfunded liabilities — unlike traditional plans that guarantee benefits up front based on a worker’s salary and years of experience. Public employee groups view such proposals as an attack on workers’ retirement security.

Even some Republican senators are wary of moving too quickly. Morris said there’s a growing concern that if the state tries to start a 401(k)-style plan, the Internal Revenue Service will require Kansas to pay off the KPERS unfunded liability within a decade.

“To do something that significant on the fly — I’m not sure we want to do it that way,” he said.

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