TOPEKA, Kan. (AP)—Public employee groups in Kansas have misgivings about a legislative proposal unveiled last week for overhauling the state pension system, even though it backs away from starting a 401(k)-style plan for new teachers and government workers.
Details of the proposal were unveiled during a meeting of the House Pensions and Benefits Committee by Chairman Mitch Holmes, a St. John Republican. Its key feature is a new retirement plan for public employees hired starting in 2014, one designed to limit financial risks both for the state and the workers. The committee is expected to debate it this week.
The Kansas Public Employees Retirement System projects an $8.3 billion shortfall between anticipated revenues and benefits promised to employees through 2033. That’s led some Republican legislators and GOP Gov. Sam Brownback to advocate moving to a 401(k)-style plan for new hires and away from traditional KPERS plans that provide benefits based on a worker's salary and years of service.
Public employee groups oppose starting a 401(k)-style plan, and some legislators began to question the cost of starting one while trying to close the long-term funding gap. Holmes’ plan attempts to address such concerns, but public employee group lobbyists—who initially were encouraged by talk of a new approach—said Friday they worry workers still would see diminished retirement benefits and greater financial risk.
“It may be a little better than a 401(k), but it’s not the correct answer to the problem,” said Jerry Marlatt, a lobbyist for the Kansas State Council of Fire Fighters.
The proposal outlined by Holmes would create a new retirement plan that would not base benefits on a worker’s salary and years of service, as is traditional, but on how much the employee and the state contributed.
Yet instead of tying benefits to long-term investment earnings, as a 401(k)-style plan would, an employee would be guaranteed 5 percent interest on the contributions annually. Upon retirement, workers would have a lump sum that could be converted into an annuity.
“The challenge there was to get something that’s meaningful and yet something that is not too big a risk to the state,” Holmes said.
Under the proposal, if KPERS investment earnings exceed 5 percent annually—and its long-term assumption is 8 percent—the difference could go to closing the long-term funding gap.
“That is not, probably, a popular thought, but my intention is to get out of debt,” said committee Vice Chairman John Grange, an El Dorado Republican, who was involved in drafting the new plan.
Some legislators and other critics of traditional pension plans say Kansas can’t afford to continue guaranteeing a certain level of benefits, regardless of KPERS investment earnings.
But skeptics of starting a 401(k)-style plan or the new proposal said the state has a funding gap because legislators and governors shorted the state’s contributions for years.
And they dislike the new proposal because it would require new employees to contribute 6 percent of their pay to their retirement benefits, while the state would contribute a maximum of 4 percent.
“On the surface, it doesn’t look good,” said Andy Sanchez, a lobbyist for the Kansas AFL-CIO. “We’re asking employees to ante up when the state hasn't for years.”