Topeka Kansas legislators drafted a new, compromise plan Wednesday for attacking the state pension system’s long-term funding problems that doesn’t include a commitment to start a 401(k)-style pension system for teachers and government workers.
The new proposal emerged from negotiations between three senators and three House members who were trying to reconcile the differences between their chambers on pension legislation. The plan creates a commission to study whether the state should start a 401(k)-style plan and other issues, requiring the group to make recommendations to legislators next year.
The bill also requires public employees to choose between paying a higher percentage of their salaries into the Kansas Public Employees Retirement System and having future benefits cut. The measure commits the state to increasing its annual contributions to KPERS, starting in July 2013.
The proposal will go to both chambers for up-or-down votes, possibly by the end of the week. If it clears the Republican-controlled Legislature, the measure will go to GOP Gov. Sam Brownback.
The retirement system projects a $7.7 billion gap between its anticipated revenues and the benefits promised to teachers, judges, police, firefighters and other government workers through 2033.
“The Legislature had to act,” said Sen. Jeff King, an Independence Republican, and his chamber’s lead negotiator. “I think it’s a good compromise, and I think it gets us down the road to a long-term solution.”
The key issue was establishing the 401(k)-style plan for teachers and government workers, tying their benefits to investment earnings. Current KPERS plans guarantee benefits up front based on a worker’s salary and years of service, and the state is on the hook instead of employees if the retirement system’s revenues don’t keep up.
The House approved a bill to create a 401(k)-style plan for all teachers and government workers hired after June 2013, cutting future benefits for other employees who didn’t opt to join. Republicans who support the idea said if the state doesn’t close current KPERS plans, each new worker adds to its long-term liabilities.
House Pensions and Benefits Committee Chairman Mitch Holmes, a St. John Republican and his chamber’s lead negotiator, said he believes GOP Senate negotiators supported a 401(k)-style plan but “just wanted the commission first.”
“It was a little bit disappointing,” he said.
Asked about the chances of the House passing the compromise plan, Holmes said, “I’ll do my best to sell it over here.”
Senate GOP leaders argued a study is prudent, allowing legislators to pull public employee representatives and business leaders with expertise in pensions into the debate. Also, a KPERS report said a 401(k)-style plan would have startup costs, slowing efforts to close the long-term funding gap and costing the state and local governments an additional $1.2 billion in contributions to KPERS through 2033.
Democrats and public employee groups strongly oppose starting a 401(k)-style plan, fearing it would make workers’ retirement benefits less secure — and less lucrative. They were pleased negotiators didn’t commit to starting a 401(k)-style plan but concerned about how the study will turn out.
“I think it’s a real good step in the right direction,” said Terry Forsyth, lobbyist for the Kansas-National Education Association teachers’ union. “There are a lot of contingencies we have to deal with yet.”
About 131,500 teachers and government workers covered by KPERS pay 4 percent of their salaries to the pension fund. Under the plan, they would have the option of paying 6 percent and getting a slight bump in future benefits, or staying at 4 percent and seeing benefits drop significantly.
An additional 20,000 employees, hired after June 2009, already pay 6 percent of their salaries into KPERS, and they’ve been promised annual cost-of-living adjustments in their benefits after they retire. Under the plan, they would have the option to still pay 6 percent but lose the future adjustments, or pay 8 percent and keep them.
The state would phase in a $28 million increase in its annual contribution to KPERS over four years, starting in July 2013.
The study commission would have 13 members, five appointed by the governor and the rest, by legislative leaders. At least one chamber would have to vote on its recommendations next year.