Archive for Sunday, October 30, 2011

Analysis: Closing state pension gap still expensive

October 30, 2011


— A commission examining Kansas' public pension system still must tackle the daunting issue of closing the system's long-term funding gap, a task likely to prove expensive no matter what emerges from its discussions.

The pensions study commission is building on work by legislators earlier this year that produced the law creating the group, while committing the state to increasing its contribution of tax dollars to the Kansas Public Employee Retirement System. The law also will force public employees to choose between contributing more of their paychecks to their pensions and accepting lower future benefits.

Commission members plan to consider drafting a proposal to start a 401(k)-style plan for new hires or a less aggressive hybrid of that approach and traditional plans. KPERS plans guarantee benefits up front, based on an employee's salary and years of experience, rather than on investment earnings, as is common for businesses.

The debate over starting a 401(k)-style plan is contentious and pits Gov. Sam Brownback and Republican allies in the GOP-controlled Legislature against public employee groups. Yet bolstering the long-term financial security of KPERS will require the commission and legislators to consider other ideas likely to cause heartburn and complicate Brownback's push on other initiatives next year.

An AP News Analysis

The pension system projects a gap of nearly $8.3 billion between its anticipated revenues and the benefits promised to both retirees and current employees, through 2033. The commission plans to discuss committing even more state tax dollars to KPERS and issuing as much as $5 billion in bonds to eliminate what's known as the system's unfunded liability.

"Pay now or pay later, but you're still going to pay," said House Speaker Mike O'Neal, a Hutchinson Republican and Brownback ally who supports moving toward a 401(k)-style plan for new hires. "There's no magic pill that's going to fix the unfunded liability. There's going to be some tough love involved."

Brownback appears to be preparing an ambitious agenda for the 2012 Legislature. A task force is drafting a plan to overhaul the state's Medicaid program, to cut the costs of covering medical care for the needy, and a top aide recently discussed details of a coming plan on education funding during a gathering of school administrators. A task force is working on a plan to cut taxes.

Bolstering the state pension system also is on his list, but the governor was careful to say last week that he's waiting to see what the commission develops. He's said repeatedly that he favors moving toward a 401(k)-style plan.

The commission will consider not only that idea but also a "stack" plan for new hires, in which the first part of a worker's salary, from $50,000 to $80,000, is covered by a traditional plan and the rest, by a 401(k)-style plan.

Backers of moving toward a 401(k)-style plan argue that doing so will help control the state's long-term costs, by tying benefits to the system's earnings. Also, they contend that many employees, particularly younger ones, will do better.

Public employee groups loathe the idea. They're skeptical — given experiences in the Great Recession — of claims that workers will do better and argue that their retirement benefits are likely to become less generous and less certain.

But the debate about moving toward a 401(k)-style plan is largely about the future, and whatever happens, the long-term funding gap from current plans must be addressed.

"I do want to make sure we cover how we pay for this unfunded liability," said Frederick Poccia, a study commission member from Overland Park with more than 30 years in the banking and financial services industries.

The latest estimate for the unfunded liability, released in July, represents the estimate at the end of 2010, before this year's law was enacted. The law is expected to reduce the gap, but changes for workers and the state's commitment of extra tax dollars won't be triggered unless the commission makes additional recommendations and legislators consider them by 2012.

And commission members still expect that, even if the law's provisions do take effect, a significant unfunded liability will remain.

Changes in workers' pension plans mandated by this year's law would take effect in 2014. The state would boost its contribution to KPERS by about $14 million in July 2013, ramping up the increase to $113 million in July 2018.

But even with those increases, the contribution could go higher still — and would, if Kansas law simply said that the state would contribute whatever is required to keep up with increases in commitments to workers. The law now caps annual increases, a move state Sen. Laura Kelly, a Topeka Democrat, and study commission member, said results in ongoing underfunding of KPERS and therefore "makes no sense."

Of course, the cap does make sense in the context of the entire state budget. If there were no cap, the state would be forced to allocate dollars to teachers' and government workers' pensions that could go to public schools, social services and public safety.

Still, commission members plan to discuss eliminating the cap.

Commission members also plan to consider recommending issuing bonds. Such a plan anticipates that earnings from investing the funds raised will outstrip the payments on the debt, while giving KPERS an infusion of cash to close the long-term funding gap.

The state tried it in 2004, issuing $500 million in bonds, only to see the long-term funding gap still jump because of investment losses during the Great Recession. Another bond issue — and the annual debt payments — would have to be much larger to make a big dent.

The commission can't avoid discussing such alternatives, and legislators can't either, because of the long-term KPERS funding gap.

"It's probably the 10,000-pound elephant sitting in the room," said state Sen. Jeff King, an Independence Republican and study commission member.


Phillbert 6 years, 6 months ago

"There's going to be some tough love involved."

And by that Republican Speaker Mike O'Neal means tough love for workers who paid into the pension system. Koch & Friends will still get their tax cuts.

chootspa 6 years, 6 months ago

Tough for middle class employees, love for the Kochs. The only sort of tough love he knows.

Alceste 6 years, 6 months ago

This political hack "commission" promised "public input" by way of PUBIC meetings. They never announced a single one that I could I ever find.

What a bunch of right wing, wealthy, 1%ers who don't want to be Americans. Let them roll them in their collective fecal wealth. They want to be part of the new meritocricy.

If there IS a list of public dates, and Alceste missed it because Alceste is so old and feeble, would somebody please post a link that announced the dates of the PUBLIC meetings and where they were to be held, because Alceste never saw it.....

JayhawkFan1985 6 years, 6 months ago

State law currently compels state workers and teachers to contribute 4% of their gross wages into KPERS. These people are then taxed on this part of their income by the state even though they do not receive this money. The State Legislature has systematically failed to contribute what it is actuarily required to contribute. The current problems are not a surprise. It is not a result of just the current economic crisis. Rather, it is part of a broader agenda to squeeze people who have dedicated their professional careers to public service. KPERS is NOT some sweetheart deal. State employees and teachers are part of the 99%. As Kansans, we should be looking out for the interests of these dedicated professionals. Those of us in the private sector should be demanding better wages and benefits for everyone, not resenting the few scraps that underpaid state employees and teachers get. Tax cuts are not the way to go. Tax cuts won't stimulate the economy.

jafs 6 years, 6 months ago

I generally agree.

But, I don't think that KPERS contributions are taxed at the state level.

And, there are some facets of KPERS that are too generous to be sustainable over time.

maintmanks 6 years, 6 months ago

KPERS, Kansas Police and Fire, and Judges retirement system contributions are all taxed at the state level. It's added back on the K-40 as a modification to your federal adjusted gross income.

Scott Morgan 6 years, 6 months ago

teachers get another smooch as they are the only ones Iin KPERS who pay for health ins. Sometimes in districts as my son works, a great deal towards health ins in fact.

He told me some districts do get to use the state plan. He pays nearly 500 bucks a month for his family.

lawslady 6 years, 6 months ago

ahhh...not true. All state employees in KPERS pay for health insurance. The amount they pay may vary (based upon their coverage and employer). But no state employee gets FREE health insurance coverage. They are part of different "pools," so the price/costs to the agency can vary.

JayhawkFan1985 6 years, 6 months ago

The KPERS Commission members appointed by Brownback are:

-- Edward Condon of Leawood. He is chief operating officer of Sterneck Capital Management -- Christopher Long of Mission Hills. He is president and founder of Palmer Square Capital Management LLC. -- Paul Seyferth of Fairview. He is a founding member of Seyferth Blumenthal and Harris, LLC. -- Richard W. Stumpf of Wichita. He has been with Financial Benefits, Inc. since 1988 where he is a certified financial planner and a certified Employee Benefits Specialist.
-- Brian Winter of Dodge City. A rancher, he also manages and owns Winter Livestock, Inc.

These all look like political cronies to me...why are KAPE, KOSE and KNEA not represented to any degree on this commission? All business interests? No Labor interests? Sounds like the 1% have already beat the 99%...

chootspa 6 years, 6 months ago

Moving from KPERS to a 401k plan for new hires seems incredibly expensive for taxpayers. Increasing state contributions, decreasing benefits, or increasing employee contributions or some combination would all potentially fix the system without making a painful transition period, but switching to a 40k for new hires would mean the state would be paying unfunded pensions for 30+ years. Maybe the stack plan would make sense. It would primarily affect people who should have incomes high enough to allow them to save for their own retirement, but you'd have to have the ability to raise the ceiling with inflation.

That's not addressing the part where a 401k isn't a good deal for anyone but the company shareholders. Employees were sold a bill of goods when traditional pensions were removed. Arguing that other businesses do it that way doesn't cut it.

PS - the "fix" to education funding will be ALEC-fueled charter schools. They get as many people off KPERS as possible that way, and if most of those schools fail (which they will) that's just fine with them.

jafs 6 years, 6 months ago


The state should have to fund the system adequately, the expected return on investments should be lowered (8% is not reasonable for a pension plan), and the KPERS system needs to be tweaked a little bit to be less generous.

chootspa 6 years, 6 months ago

It's already been tweaked to be less generous. Current retirees are under a different system than new hires. They don't have the same early retirement benefits and pay more into the system.

jafs 6 years, 6 months ago


But they may need to do more to make it sustainable.

chootspa 6 years, 6 months ago

Or have the state pay their part like they should have done all along.

jafs 6 years, 6 months ago

In addition to that.

It's not an either-or situation.

My three suggestions included that, as well as reasonable projections for investment income.

There are some facets to the KPERS program that don't make financial sense, and offer more generous benefits than can be gotten sustainably.

verity 6 years, 6 months ago

You are right, Jafs. However, my understanding is that the retirement plan plus the generous health insurance (for some) has been something that made up for getting a lower salary than one might have had in the private sector---along with the fact that the state had to have cause to fire a person so there was (apparently, but not always in reality) more job security.

Of course, now that the private sector has been cutting wages, benefits and jobs, the state no longer needs to be so generous. We seem to be in a race to the bottom.

mloburgio 6 years, 6 months ago

Kansas Legislator Pensions Inflated More Than Ten Fold A May story said that Kansas legislators get credit for working 372 days a year.

Although Kansas legislators work part time and are paid only during the 90 legislative session and days their committees meet outside that window, lawmakers who choose to join the Kansas Public Employees Retirement System (KPERS) pay their contributions into the system as if they worked every single calendar day of the year plus one more week

Legislators are the only classification of Kansas public employee that can draw down benefits based on a annualized salary.

Kansas Legislator example

Salary: $7,979

Inflation #1: Based on 372 day year = $32,982

Inglation #2: Include $123 per diem (also for 372 days) = $45,756

Inflation #3: Include payments for expenses while not in session = $7,083

Total salary for pension calculation: $83,216

Government employees enrolled in KPERS and hired before July 1, 2009, make a 4 percent employee contribution. State employees hired after that date contribute 6 percent.

Legislators’ make the same percentage contribution but it is based on their annualized total pay and expenses of $83,216. The contribution is 42 or 65 percent of their actual $7,979 annual base pay only.

KPERS is currently reported to have an $8.3 billion gap between what’s been promised to the 260,000 active, inactive and retired state workers through 2033 and the projected resources it will have to pay those benefits. A special commission has been created to find ways to close the gap.

The $8.3 billion gap is expected to more than double under new pension reporting rules likely to take effect by 2014.

chootspa 6 years, 6 months ago

You've taken someone else's job to copy and paste that story. Not that it isn't plenty outrageous and worth repeating. Whatever solution the catfood commission comes up with on this, the current legislators won't have to suffer for it.

Alceste 6 years, 6 months ago

Here ya go....the 'em and weep:

Even though they only really "earn" for a couple of months of the year, they get credit for earning it all year long.

For the legislator listing all income - the daily rate, subsistence and allowance - this is how annualization is calculated:

•$88.66 (daily rate) x 31 (days) x 12 (months) = $32,981.52

•$123 (subsistence) x 31 (days) x 12 (months) = $45,756

•$7,083 non-session allowance.

Altogether, that equals $85,820.52, and that's the pay figure that would be used for that legislator retiring now.

Now then, that political hack who is president of the Kansas hillbilly senate or whatever the operation is has defended this obscene payout because legilsators work for " little money....". Ok....if that is the case, why aren't all civil servants for the state of Kansas allowed to have their KPERS benefit calculated on a 372 day work year?

In calendar year 2010, employer contributions for legislators in KPERS slightly topped $900,000.

A legislator retiring with an annualized pay of $85,820.52, and with 10 years' service, would have an annual KPERS benefit of $15,018.60, for a monthly benefit of $1,251.55, according to KPERS. If the retiring legislator had 20 years' service, the annual benefit would be $30,037.20, and monthly, $2,503.10.

A state social services worker in a supervisory role retired in 1995 after 15 years and draws a monthly KPERS benefit of $524. That is equal to the monthly benefit for a county-level commercial appraiser who retired at 65, vested at nine years with KPERS.

It's for the children, you know. shrug +++++++++++++++++++++++++++++++++ This guy Morris who is the President of the Kansas Senate has even been quoted as saying he deserves that kind of KPERS benefit because he is so underpaid!!! Man, this is some amusing stuff!!! Aren't legislators supposed to be servants of the people? Isn't the common thinking that people run for office, not to get rich, but to serve? We sure do think stupid real good like in this state: The people who do the day to day work which make Kansas run have their KPERS figured one way.....and the galoots who pose for 3 months a year as "legislators" get to figure their KPERS benefit in a totally different the point where they've invented a new calendar: 372 days in a year and they work each and every one of them!! Woo Hoo!!!

William Weissbeck 6 years, 6 months ago

Let's see how Brownback's unicorn economics in a flat earth world fixes this. I'll give him the benefit that he didn't "exactly" cause this problem. But what did cause it was the Grover Norquist, no tax GOP and a phony bipartisanship with the pro-government Democrats and moderates. In effect for years the pro-government forces staffed and ran governments at all levels, while the anti-tax folks went along with their fingers crossed behind their backs. Now that the anti tax folks have the clear political leverage they feel no need to follow through on earlier promises. To them government workers had an unrealistic expectation of a retirement. If a private company does this, it ends in bankruptcy and/or charges of embezzlement by the corporate officers.

Jimo 6 years, 6 months ago

Gee, I guess we couldn't afford those tax cuts after all.

The wingnuts probably actually believed that if they threw enough money into the jaws of the wealthy that they really would create wealth and prosperity for everyone and so it would be easily to skim off some of the cream and use it to make up the missed pension funding that was looted. (Is it really stealing if you plan to pay it back?)

These same wingnuts now have some brilliant scheme to shift to the failed 401k model wherein the masses are left with underfunded retirements and the 1% sits in haughty smugness as says -- Herb Cain like -- "If you don't have enough saved from the paltry wages we paid you to afford more than discount catfood then that's your fault!!"

tomatogrower 6 years, 6 months ago

Conservatives are saying how workers don't deserve pensions, but I'll bet they would defend this jerk. His company's stock values went down, yet he still cleaned up. And he is getting $100 million when he retires. I mean how many trophy wives does this guy have? Every time you pay at the gas pump, remember you are helping this poor guy. I wonder how well their secretaries and the people who do the real work get paid.

tomatogrower 6 years, 6 months ago

Here's a site for average oil and gas workers. I wonder how these guys like it that the suit keeps them from earning more or from getting a decent retirement package. Or I wonder how many jobs could be created if the guy was paid decent money. I'm sorry, but there are a lot of MBA's running around out there who could do his job. Why is he so special? I'll bet he couldn't do the real jobs that the "peons" do. Yet, he wouldn't have all that money if they didn't do their work. Get a clue workers.

tomatogrower 6 years, 6 months ago

Oh, and get a clue investors. He is taking money from you too.

tomatogrower 6 years, 6 months ago

Silence from the conservatives? I thought you would defend this upstanding dog eat dog capitalist. I don't begrudge a boss a larger salary, but where would this company be without the people who do the real work? Seriously, no one is worth this much money. I'm making sure that none of my investments are with this company. Chump board of directors. Dishonest and disgusting CEO. But, oh my god! State workers want the paltry pension promised to them. What is the real example of greed?

Alceste 6 years, 6 months ago

People just like to post on message boards. chootspoop doesn't get it.

Here's the email contact for ALL the people on that KPERS cmte (some of 'em have two addresses). Don't look for much, if anything in the way of cogent replies: Pablum is what they'll feed you....even the one's appointed by the annoited Paul Davis who is also going draw down KPERS at the fat cat 372 schedule. He ain't got the rocks to admit it in public, either....:

William Buchanan

Jeff King

Edward Condon

Chris Long

Paul Seyferth

Richard W. Stumpf

Brian Winter">p> Fax: (785) 296-6718 rep@mitchholmes.comp>>

Senator Jeff King

Senator Laura Kelly

Steven Johnson

Representative Ed Trimmer

Rebecca Proctor

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