Advertisement

Archive for Monday, March 18, 2013

Proposal for KPERS change gets big-name backing

March 18, 2013, 12:09 p.m. Updated March 18, 2013, 11:34 p.m.

Advertisement

— Republican legislators and GOP Gov. Sam Brownback’s administration on Monday launched a campaign to create a 401(k)-style pension plan for new Kansas teachers and government workers with a pitch from former presidential candidate Bill Bradley and a Nobel laureate. Bradley, a retired U.S. senator from New Jersey and former New York Knicks standout, and Robert Merton, a professor of finance at the Massachusetts Institute of Technology, were star witnesses for a Kansas House Pensions and Benefits Committee hearing.

Both advise a Texas company that manages 401(k)-style plans in the private sector, where such plans are the norm, and they said innovations in managing them can reduce uncertainty for employees about their retirement benefits. If legislators opt for a 401(k)-style plan, that firm and others could seek a contract to manage it for the Kansas Public Employees Retirement System.

The committee has been working quietly for weeks on legislation aimed at improving the long-term financial health of KPERS, which has a projected $9.3 billion gap between its anticipated revenues and the benefits promised to public employees through 2033. Legislators enacted a major overhaul of the pension system last year, but it did not include a new 401(k)-style plan, favored by Brownback and other GOP conservatives.

The House committee’s proposals would start a 401(k)-style plan for teachers and government workers hired after 2014 and authorize the state to issue $1.5 billion in bonds to bolster the pension system, an idea the panel reviewed Monday evening after its hearing with Bradley and Merton. KPERS now operates traditional plans that guarantee retirement benefits up front, based on an employee’s years of service and career-end salary.

Bradley and Merton said such traditional plans are no longer sustainable, but they acknowledged that 401(k)-style plans have defects as well. Merton said such plans tend to focus on building up an overall nest egg and investment returns, rather than on the amount of income a worker wants in retirement. He said it’s possible to design a 401(k)-style plan that gives workers simple-to-use guidance on how much to save to have an adequate income in retirement.

“This is an innovation that is desperately needed in the pension area,” Bradley told the committee. “Your choice is: Do we really try to innovate here and in this case make Kansas really the cutting edge?”

The committee’s proposals still face strong skepticism from retiree and public employee groups and their Democratic allies.

A 401(k)-style plan would base retirement benefits on the amount of money workers and their employers contributed to the plan and the earnings from stocks, bonds and other investments over time.

Public employee groups worry that volatility in financial markets — or a crash — could slash benefits for employees as they near retirement age.

They’ve also noted that starting a new plan doesn’t address how the state will close the long-term funding gap in its existing pension system. Supporters of such plans say creating one will at least keep the gap from growing.

Comments

headdoctor 1 year, 1 month ago

At the rate Brownback is going it wont be long until Texas and Florida people own more of Kansas than Kansans do.

0

verity 1 year, 1 month ago

When there was a discussion about privatizing Social Security, there was an estimate about how much it would cost---quite a very large amount, as I recall.

Have we seen any figures about how much it will cost to privatize KPERs?

0

verity 1 year, 1 month ago

You do realize that any profits you make on your investments are taxable as capital gains. Of course, you also get to subtract your losses.

Not sure about all the repercussions, but one needs to investigate whether you can put money from your 401K into a Roth IRA or if it is held captive until you retire or leave the company. It may have changed, but when I had 401Ks, I could only invest in a very limited number of entities, controlled by the company who sold the plan to my employer.

0

UneasyRider 1 year, 1 month ago

My KPERS is fully vested. I "WILL" retire Dec 1 and take the maximum 50% pay out and move out of Kansas. At least I know I will have that much. When the current group of incompetent Koch heads finish this session, there won't be anything left for future retirees. And they will see what kind of people will be willing to work for the state. Level of competence in future employees will drop rapidly.

2

just_another_bozo_on_this_bus 1 year, 1 month ago

Bill Bradley has a great track record of supporting the working and middle classes-- enough so that I'd be willing to listen to his ideas.

That said, given the general agenda of class warfare in this legislature and in the gov's mansion, I find it hard to believe that they are willing to look at any of the innovations that would make a 401(k) plan anything but a big fat gift to Wall Street, and a giant sucking machine on the retirement plans of those who actually worked for a living.

0

mikekt 1 year, 1 month ago

Who was the jerk in Orange County, California who did a Merrill Lynch Advised Hedge Fund Investment with the counties pension fund accounts ?

He made impressive profits for a while,....... until he suddenly lost it all !!!!!!.......leaving the county to cover the missing funds.

Seem to me that the hedge fund firm LONG TERM CAPITOL MANAGEMENT had some world class expert financial wizards running it, before it went belly up like the rotting whale of an investment model that it was ! An investment model complete with "experts from afar".

Are Brownie and Company going to reach into their personal pockets and make good to our state worker, etc., if these incoming sales pitches turns out to be the next version of "Bernie-Made-off-with-somebodies-life-savings".

Who rides hurd over that one ? Some Wall Street Rating Company, so called truth teller bunch, that no longer rates investments that are backed by credit default swaps,.... for obvious reasons ?

0

buffalo63 1 year, 1 month ago

I retired in 2007 with my 401K plan in a place that I was able to comfortably do that. Then 2008 came. My wife's KPERS has kept our heads above water.

5

1Dem 1 year, 1 month ago

Let me see if i understand this proposal. At a time when the stock market is near a record high the legislature, as Senator Jeff King has suggested, moves the risk for the retirement system from the State of Kansas to the individual employee. With this 401k plan the employee is at the mercy of an investment advisor and likely the stock market. So, the new employee, who has no choice in the matter risks his funds with this investment advisor the State has picked out and the investment advisor or the employee decides where to invest and the employee assumes the risk. SO, this new employee buys into the stock market at a time when it is at a near record high. I thought you buy when stocks are low, not high. Investing in gold, well gold is high. Invest in silver. It is high. Invest in oil. It is high. Seems to me it will take a lot of money for that individual to buy in at near record prices. SO, if I understand this proposal correctly the idea is to transfer risk to the individual employee so the State will not have to pay a retired employee a pension for their many, many years of dedicated and loyal service. Does that sound right? SO, if the company this employee is invested in goes bankrupt the employee has little or no 401k to retire on. NOW, if this same proposal is accepted one day by Congress, as George W. Bush suggested and Sam Browback supports then this new employee may also have his social security funds, at the employee's own risk, invested in a company's stock at inflated prices. Maybe after KPERS and Social Security go 401k the Koch brothers could do a stock offering for Koch Industries and they live happy ever after.

1

verity 1 year, 1 month ago

Anyone else bothered by the fact that both these expert advisors have a dog in this fight?

1

William Weissbeck 1 year, 1 month ago

A "friendly plan?" How about simple and cheaper, but more profitable to the employees, without simply enriching the plan administrators? This is one of those odd quirks of math - how do you take the same amount of money that is/should have been contributed on the employee's behalf and give it first to a private investment firm who is supposed to make its own profit and make the same or better investment gains for the employee?

1

gccs14r 1 year, 1 month ago

Question4u has it dead on. The reasons to work for the State are benefits and stability, not for wages and upward mobility. Take away the job security and the defined benefit pension and your potential employee pool dwindles to only those without ambition who can't find work anywhere else. That is not a recipe for efficient government.

4

question4u 1 year, 1 month ago

"They told Kansas lawmakers they could pursue innovations in managing a new plan that would make it friendly to employees."

In other words, without "innovations" it isn't "friendly to employees." Is there anyone willing to bet that this legislature would pursue those innovations? Anyone? Anyone at all?

So, state salaries won't be competitive with the private sector, but at least the benefits will make up for that. No? Well, no matter. Kansas is going to be amazingly efficient when the only people willing to work for the state are people who can't find employment anywhere else. After all, that's how you run a successful business: hire only the least qualified employees, because you can pay them less. That "penny wise, pound foolish" stuff is only for people who think ahead.

10

Hooligan_016 1 year, 1 month ago

All of the reports out of Topeka today have just been horrible.

(not the reporting style :D, just the policy debates today)

1

pace 1 year, 1 month ago

Kansas GOP are turning in to monsnster as we vote them in.

0

Commenting has been disabled for this item.