Pension plans in Kansas: Cuts likely

Legislation to create a new 401(k)-style pension plan for Kansas teachers and government workers and cut the future retirement benefits of those who won't switch won first-round approval Wednesday in the state House.

The bill advancing on a voice vote is the most sweeping proposal for changes to the Kansas Public Employees Retirement System being considered by legislators this year. GOP leaders expect the House to pass it on another, final vote, probably Monday. The House debate Wednesday on its plan came the same day the Senate approved its own but less ambitious plan on a 35-4 vote.

Lawmakers are attacking the forecast $7.7 billion gap between the projected long-term revenues for KPERS and the benefits promised for the next several decades to teachers, judges, police, firefighters and other government workers. The traditional KPERS plans guarantee benefits up front, based on an employee's salary and years of experience, rather than having them determined by investment earnings.

Negotiators for the House and Senate are likely to draft the final version of the pension legislation. Both chambers' pension plans increase the state's annual contribution to KPERS, starting July 1, 2013. The House bill would boost the contribution by $10 million, while the Senate measure includes a $23 million increase.

The Senate plan would require public employees to pay a larger percentage of their salaries into the pensionsystem, but it also would give most a modest increase in their benefits in exchange. The senators' measure is in keeping with many state officials' long-held views that Kansas law and past court decisions limit how far the state can go in imposing concessions on public employees.

The House bill goes against that conventional wisdom. It would require teachers and government workers hired after July 1, 2013 to join the new 401(k)-style plan. It would give other employees the option of joining, but if they didn't, the state would change how it calculates their future benefits — lowering them by $3.7 billion over two decades, according to one state estimate.

But supporters of the bill said that after a decade, the pension system will be back in balance, so that the state's yearly contributions and KPERS investment earnings will match the annual revenues needed to cover benefits going forward.

"I fear that we'll have to share the burden across many of us," said Rep. Steve Johnson, an Assaria Republican who serves on the House Pensions and Benefits Committee. "There is not a painless solution to a painful problem."

The House bill originally didn't include provisions to create the new 401(k)-style plan, but members voted 74-44 to add them.

"It makes it a comprehensive bill," said Pensions and Benefits Committee Chairman Mitch Holmes, a St. John Republican.

The House plan is likely to face strong opposition from public employee groups. They've resisted proposals to cut future benefits or to require workers to contribute more to the pension system. They strongly oppose efforts to move the state toward 401(k)-style plans, saying the change would sacrifice employees' security in retirement.

Democratic critics predicted the legislation will draw a lawsuit because it reduces future benefits. They also said moving toward a 401(k)-style plan shifts the burden of covering investment losses from the state to the public employees.

"It doesn't seem to be very fair," said Rep. Louis Ruiz, also of Kansas City, the ranking Democrat on thePensions and Benefits Committee.

Republicans hold large majorities in both chambers, but some GOP senators are wary of a 401(k)-style plan. Like outright critics, they argue that starting the new plan still leaves the state with an obligation to close the funding gap on its traditional plans.

The Senate bill sets up an 11-member study commission appointed by legislative leaders and the governor to study additional KPERS changes and perhaps even a new 401(k)-style plan. The commission would make its recommendations by December, and legislators would have until June 2012 to decide on them.

The Senate's bill had bipartisan support, and public employee groups were comfortable with it. But senators who voted against it — all were Republicans — questioned whether it goes far enough.

"It's just kicking the can down the road again," said Sen. Ray Merrick, a Stilwell Republican who voted against the Senate bill. "Throwing more money at the problem is not solving the problem and doing the state any good."