KPERS solution not likely this session

With little time left for the Kansas Legislature to meet this year, and with the budget still not passed, it’s not very likely that action will be taken to reform the Kansas Public Employees Retirement System (KPERS). Especially when there’s a study commission waiting in the wings to take the pressure off lawmakers to take action now. It should be noted that the “best” plan, in terms of making a start on the reforms KPERS needs, still falls short of making the fundamental reforms that are required. Below, Kansas Reporter provides details of the political wrangling.

Lawmakers spar over Kansas pension proposal

By Gene Meyer
April 28, 2011

(KansasReporter) TOPEKA, Kan. — Kansas House and Senate negotiators offered sharply differing approaches Thursday to one of the biggest changes proposed for the state’s underfunded government employees pensions plans.

House negotiators, led by state Rep. Mitch Holmes, a St. John Republican and chairman of that chamber’s Pension and Benefits Committee, are adamantly backing a House proposal that would convert what now is a traditional pension plan for Kansas teachers, state employees and local government workers into what’s known as a defined contribution plan for workers hired after July 1, 2013.

Such plans, including the 401(k) plan versions many private employers offer, provide retiring workers with pools of savings with which to supplement Social Security or other resources, but not guaranteed lifetime pensions. That would limit future exposure of Kansas taxpayers — who pay the employers’ current contributions equal to 8 percent or more of each workers’ salary into the system — to rising pension plan costs. Those costs, according to Kansas Public Employees Retirement Systems projections presented in February, could rise to equal more than 21 percent of some workers’ paychecks in two decades and still leave one group of penson funds, for Kansas teachers, out of balance.

“What my colleagues in the House, and even some Senators, are telling me is, ‘don’t back down,'” Holmes said after negotiators met Thursday to define the broad outlines of differences between the House and Senate plans.

“The Senate rejects defined contributions,” said state Sen. Jeff King, an Independence Republican and vice chair of the Senate Select Committee on KPERS, who is leading the Senate negotiators.

Senate negotiators want a special KPERS commission to study the defined contribution idea along with other potential solutions between now and the end of next year’s legislative session. Critics of the defined contribution proposal worry that such a plan would worsen the cash bind to which KPERS appears to be heading because it would reduce what is paid into the plan for traditional pension benefits current workers would continue to earn for another few decades.

“Defined contributions are a non starter as far as the Senate is concerned,” King said.

But that is just for 2013 as the House has proposed, he said; “Everything would be on the table for the study commission.”

The proposed commission is the brainchild of state Senate President Steve Morris, a Hugoton Republican who Kansas Gov. Sam Brownback last winter named as point man for legislative efforts to deal with the pension funding gap. Brownback has been quoted as saying he thinks some version of a defined contribution plan is inevitable for KPERS, whether it’s a relatively pure version such as private employers offer or a hybrid plan that would include some pension-like guarantees.

The funding hole that legislators are trying to fill is an officially projected $7.7 billion gap between benefits that KPERS has promised to pay its approximately 250,000 members over the next few decades and the money it is projected to have by then to pay those benefits. Unofficial estimates put the gap in the $9 billion to $12 billion range, based on a combination of lower market level of rates of investment returns than KPERS presumes for planning purposes and longer recovery times that will be needed to recoup market setbacks.

House and Senate negotiators were agreed Thursday on a few broad ideas for closing the gap. Both broadly agree to offer employees a choice between increasing workers contributions to maintain current formulas for calculating retirement benefits or leaving contribution rates unchanged and reducing the formulas for future benefit calculations. Some of these proposed changes would require Internal Revenue Service approval.

Both also broadly agree to accelerate the rate at which taxpayer contributions are increased — now capped at 0.6 percent per year — to at least 1.2 percent by 2017.

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