Topeka The Kansas Senate approved a proposal on Monday for attacking the long-term funding problems facing the state pension system without starting a 401(k)-style plan for new teachers and government workers.
The 31-7 vote sent the bill to the House, where a vote was expected today. The House’s approval would send the measure to Gov. Sam Brownback.
But legislative leaders weren’t sure the House would approve the compromise proposal, because most members of its Republican majority favor moving the state toward a 401(k)-style retirement plan for public employees. The House’s rejection would require it to reopen negotiations with the GOP-controlled Senate over pensions legislation.
The Kansas Public Employees Retirement System projects a gap of $7.7 billion between its anticipated revenues and benefits promised to teachers, judges, police, fire fighters and other government workers through 2033.
The compromise bill boosts the state’s annual contributions to the Kansas Public Employees Retirement System, starting in July 2013, phasing in a $28 million annual increase over four years. It requires public employees to choose between paying a higher percentage of their salaries toward their retirement benefits and having their future benefits cut. It sets up a commission to study whether the state should move toward a 401(k)-style plan.
“This is only a partial solution to the problem plaguing KPERS, but it is a vital partial solution,” said Sen. Jeff King, an Independence Republican who was his chamber’s lead negotiator on pension legislation.
The House had approved a bill that would have mandated a new 401(k)-style plan for teachers and government workers hired after June 2013. Other employees could have joined the new plan or faced a cut in their future benefits.
The Senate approved a plan to set up the study commission, with legislators voting next year on the panel’s recommendations.
The compromise — preserving the study commission — emerged from negotiations between three senators and three House members, and it had bipartisan support in the Senate. But some Republicans argued that the state should be more aggressive about moving toward a 401(k)-style plan for public employees.
House GOP leaders didn’t know going into today’s vote whether such sentiments would doom the compromise plan. House Pensions and Benefits Committee Chairman Mitch Holmes said he’s heard some grumbling but can’t say how widespread it is.
Supporters of moving to a 401(k)-style plan contend the state can’t sustain traditional KPERS plans, which guarantee benefits up front based on a worker’s salary and years of service. They argue that until benefits are based on investment earnings, as they are in a 401(k) plan, each new employee adds to the pension system’s long-term funding problem. Sen. Dick Kelsey, a Goddard Republican, called the traditional plans “dinosaurs.”
“We’re not stepping up to the plate and facing the real issue,” Kelsey said.
But public employee groups and Democrats strongly oppose such a move, fearing it will make retirement benefits less lucrative and less secure. They argue that the retirement system has problems because the state has shorted its annual contributions for too many years.
Senate GOP leaders argued that a study is prudent and will allow legislators to pull public employee representatives and business leaders with expertise in pensions into the debate.
Also, a recent 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.
“I think we get out with the least damage possible,” said Rep. Louis Ruiz, a Kansas City Democrat who helped negotiate the compromise.
Brownback, a Republican who took office in January, favors moving toward a 401(k)-style plan for new public employees, and he’s expressed confidence that it will happen. He said in an April 21st interview with The Associated Press that he expects any study to recommend at least a new “hybrid” plan giving new hires the option of joining a 401(k)-style plan.
Brownback would appoint five of the study commission’s 13 members, and legislative leaders, the other eight. House Speaker Mike O’Neal, a Hutchinson Republican, would have two appointees — giving him and Brownback a majority of the appointments.
Senate Minority Leader Anthony Hensley, a Topeka Democrat, said supporters of a 401(k)-style plan should take comfort in the makeup of the commission. Yet he voted for the compromise bill, calling it reasonable.