By Gene Meyer | Kansas Reporter
TOPEKA — Lawmakers this week have started to look at a new way to rein in the Kansas Public Employees Retirement System, or KPERS.
The compromise plan would be modeled after a cash balance plan, which Nebraska employs. Cash balance plans combine features of some private retirement savings plans, which Kansas Gov. Sam Brownback wants legislators to adopt, and the traditional pension for life, which state, local and school employees covered by KPERS want to keep.
Members of the House Pensions and Benefits Committee met Monday to learn about the plan; the Senate KPERS Select Committee met Tuesday.
KPERS’ actuaries calculate that the plan will owe future retirees between $8 billion and $11 billion more by 2033 than it will have in money to pay them.
None of the plans discussed deal directly with the multibillion dollar funding gap, though the KPERS Study Commission recommended legislators consider issuing bonds to raise that money.
But both sides agree the retirement system needs to be fixed.
Ignoring that funding shortfall would require taxpayers either to come up with almost as much as is used to run Kansas’ $12 billion all-funds budget, or cut back sharply, for example, on school and public-safety spending.
But neither the governor nor the teachers and workers are ready to abandon their first choices to repair KPERS. Brownback advocates for converting the traditional pension plan to a collection of retirement savings accounts with no lifetime income guarantee. Teachers and workers want to keep the traditional pensions and fund them more fully for future workers.
“Under the most favorable set of assumptions, KPERS is more than $8 billion behind the promises it made to Kansas retirees,” said Sherriene Jones-Sontag, the governor’s press secretary.
“The actual number could be two to three times that big,” she said. “The first rule of getting out of a hole should be stop digging. We know that a defined contribution plan would do that.”
Defined contribution plans, such as a 401(k), provide retirement savings opportunities but do not guarantee specific amounts of retirement income, as do traditional pensions or other defined benefit plans.
But switching to one of those plans would hurt schools and government by hobbling their ability to recruit a high-quality workforce, said Ron Brown, head of the Kansas chapter of the Fraternal Order of Police. A special KPERS Study Commission recommended switching to one of those plans after a summer-long attempt to find a way to curb taxpayer exposure to soaring pension costs.
“What we’ve heard about (Tuesday) would be more acceptable,” Brown said. “Whether it’s completely acceptable, we don’t know, because no one has seen the details.”
Kansas government workers “are still evaluating the idea, but it’s better than the defined contribution plan that the study commission recommended,” said Rebecca Proctor, a Kansas City labor lawyer. Proctor represents the Kansas Organization of State Employees, the state’s largest government workers’ union. She also served on the KPERS Study Commission, and wrote a minority report dissenting from its recommendations, which was signed by three other commission members.
In the 9-year-old Nebraska plan lawmakers began discussing this week, members of that state’s pension plan contribute 4.5 percent if they hold county jobs, or 4.8 percent of their paychecks if they are state workers, into a retirement account, where the money is matched by taxpayer funded employer contributions.
That’s 11.5 percent for county workers and 12.28 percent for state workers, said Phyllis Chambers, executive vice president of the Nebraska Public Employees Retirement System. The lower totals represent the plan for county level employees; the higher ones are for state workers.
In return, workers receive retirement income based on their individual and employer contributions, plus at least 5 percent in additional earnings, and more if the market returns on the state-run investments are sufficiently profitable.
Retirees can choose to take their savings in lump sums when they leave the workforce or convert it to annuities that provide a lifetime income, Chambers said in presentations to the two Kansas pension committees.
Kansas legislative researchers have not yet calculated precisely how much such a plan could cost if applied to KPERS, which has more than twice as many members as Nebraska’s plan and investments totaling $13 billion, compared with $9.6 billion for Nebraska.
Kansas also has a $8 billion or larger funding gap to deal with, which Nebraska did not have when it switched to its cash balance plan, said state Sen. Jeff King, R-Independence, who co-chaired the KPERS Study Commission last year and remains on the Senate KPERS Select Committee now.
Nebraska’s pension funds for its state, county and other public workers were funded 80 percent or more when that state made the switch, considered healthy by government standards. KPERS’ teachers’ pension funds, which are its most distressed, were only 60 percent funded last year, which is dangerously low by government accounting standards.
If Kansas were to adopt a plan such as Nebraska’s, any investment earnings more than the 5 percent profit guaranteed workers, additional earnings would have to be used to plug the gap rather than increase workers’ retirement savings, King said.
“I worry it would sentence an entire generation of Kansas workers to a 5 percent return on their investments,” King said.
The potential cash balance plan would save taxpayers money, however, said state Rep. Steven Johnson, R-Assaria, who sits on the House Pension and Investment Committee and served on the KPERS Study Commission.
By rough estimates — because precise numbers aren’t yet calculated — a Nebraska-style cash balance plan would cost about $900 million less between now and 2033 than the current traditional pension, as well as require workers and taxpayers to put in enough additional money to balance the fund, Johnson said.
Keeping the pension and increasing its contributions is the fallback plan, which is what the 2011 Legislature voted for when it created the KPERS Study Commission to explore alternatives. Legislative researchers estimate the 401(k)-style retirement accounts recommended by the KPERS Commission are estimated to cost $1.6 billion more than the fallback plan in the next two decades.
