Advertisement

Archive for Monday, February 20, 2012

Kansas House panel backs away from 401(k)-style plan

February 20, 2012, 11:20 a.m. Updated February 20, 2012, 2:20 p.m.

Advertisement

— A Kansas House committee backed away Monday from a proposal to start a 401(k)-style retirement plan for new teachers and government workers, signaling strong opposition from public employees has pushed legislators to rethink how they'll tackle the state pension system's problems.

The Republican chairman and vice chairman of the House Pensions and Benefits Committee, who've advocated a 401(k) -style plan for new hires, outlined alternative proposals and said the panel will consider their ideas next week.

The proposals from Chairman Mitch Holmes of St. John and John Grange of El Dorado would still move away from guaranteeing workers' retirement benefits based on their salaries and years of service. But their proposals wouldn't tie benefits directly to investment earnings, as a typical 401(k)-style plan does.

The proposals are significant because support for a 401(k)-style plan has been strongest in the House, where conservative Republicans have a majority. Many of them have argued that legislators can't solve the long-term funding problems facing the Kansas Public Employees Retirement System without cutting off the entry of new employees into traditional retirement plans.

Republican Gov. Sam Brownback supports such a move, but the idea has drawn fierce opposition from many Democrats and public employee groups. They argue that starting a new plan comes with its own costs and won't do anything to close the $8.3 billion shortfall KPERS has projected through 2033. They also argue that retirement benefits will be less generous under a 401(k)-style plan.

"The feedback that they've had is that it hasn't been very popular," said Rep. Louis Ruiz, of Kansas City, the committee's ranking Democrat. "It's a little breath of relief here."

The proposals from Holmes and Grange would start a new plan in Kansas modeled on one in Nebraska. Both employees and the state would contribute toward workers' pensions and guarantee that the balance would grow at least 5 percent a year. Upon retirement, workers would have a lump sum that could be converted into an annuity.

"It's better than what we had, and I'm pleased that we're going to move forward on it," said Rep. Charles Roth, a Salina Republican.

Committees in both the House and Senate have struggled with a proposal for overhauling KPERS drafted last year by a study commission. It would require teachers and government workers hired after June 2013 to join a 401(k)-style plan.

The commission was created by a law enacted last year that also will increase the state's annual contribution to KPERS and require some concessions from workers. Some legislators, particularly Democrats, believe that law could eliminate the long-term KPERS funding gap, but others, particularly Republicans, are skeptical.

Holmes said the study commission's proposal for a 401(k)-style plan isn't dead.

But he added: "I think the complexity of what came out of the study commission is what prompted us (to draft alternatives). Conceptually, it sounded fairly easy to do, but once they got into it, started drafting the bill, it became fairly problematic."

Also, the study commission's plan would cost the state an additional $10.9 billion through 2060. The new 401(k)-style plan would account for only part of that figure, but critics say the additional costs of the new plan alone would be considerable.

"You're fighting two fires with one fire hose, the fire hose being the amount of money available," said Ernie Claudel, vice chairman of the Kansas Coalition of Public Retirees.

Comments

jafs 2 years, 10 months ago

So what sort of system are they proposing? It's hard to imagine a "hybrid" of the two systems, since they are different in their functioning - one is a defined benefit, the other defined contribution.

chootspa 2 years, 10 months ago

Some sort of system that gives people less when the market is down, I guess. Because people need less retirement money during recessions?

William Weissbeck 2 years, 10 months ago

You can have a defined contribution by the employer that is not tied to employee contributions. Then actually make the contribution and invest it prudently. Wall Street always welcomes new business.

William Weissbeck 2 years, 10 months ago

You can have a defined contribution by the employer that is not tied to employee contributions. Then actually make the contribution and invest it prudently. Wall Street always welcomes new business.

jafs 2 years, 10 months ago

Ok.

But it would still be a defined contribution plan, with no guarantees for employees.

According to the story,"benefits wouldn't be based solely on investment earnings" - where would they come from then?

Jan Rolls 2 years, 10 months ago

People's 401's still haven't recovered from the last down turn in the stock market.

Commenting has been disabled for this item.