TOPEKA, Kan. (AP) — Moves to close the Kansas public retirement system’s long-term funding gap haven’t eliminated interest among legislators in creating a 401(k)-style plan for new teachers and government employees.
Republican Gov. Sam Brownback and the GOP-dominated Legislature also can’t avoid discussing public pensions during the 2014 session because the state’s contributions to teachers’ retirement benefits have ballooned. The increases are coloring a debate over education funding.
The effects of the Great Recession continue to hamper the Kansas Public Employees Retirement System because the system averages investment gains and losses over five years to measure its long-term health. Even with major pension system changes in in 2011 and 2012, the gap between anticipated revenues and commitments to employees through 2033 approaches $10.3 billion — 11 percent larger than projected a year ago.
Changes in recent years boosted state contributions to public pensions and even committed profits from state-owned casinos. The state revised benefit plans for existing employees and created a new one for workers hired after 2014 that moves away from traditional plans that guarantee benefits up front, based on an employee’s salary and years of service. But the alterations stop short of creating a 401(k)-style plan, in which benefits are tied to investment earnings.
Public employee and retiree groups have argued Kansas had a long-term funding gap because legislators and governors shorted KPERS contributions for years. They’ve helped block a 401(k)-style plan by convincing enough lawmakers the startup costs would be too formidable.
But Rep. John Rubin, a Shawnee Republican and a member of the House Pensions and Benefits Committee, said under current projections, KPERS assets cover only 56 percent of its long-term obligations. He’s drafting a proposal for the next legislative session — which starts Jan. 13 — to create a 401(k)-style plan for employees hired after June 2015. Supporters of such a move argue 401(k) plans are common among private companies because traditional plans can’t be sustained.
“I’m terribly concerned that if something isn’t done in the near future, the KPERS fund is going to go bankrupt,” Rubin said. “It’s high time that we face the music.”
KPERS Executive Director Alan Conroy said, absent another Great Recession, the state is on track to eliminate the entire long-term funding gap by 2033, even though this year’s numbers were significantly worse.
“Most of that was driven was by the last, sort of, bitter pill, from the 2008 investment losses,” Conroy said.
Ernie Claudel, a retired public school teacher and administrator from Olathe who’s vice chairman of a retirees’ coalition, said starting a 401(k)-style plan would be like falling behind on a mortgage but buying a second house. Claudel was elected by KPERS members this year to serve on its Board of Trustees.
“This is an ideological and political debate,” said Claudel, who stressed he’s not speaking for the KPERS board. “It’s not a financial one.”
Even some Kansas officials who’ve advocated for such a plan — or at least a step toward something similar — are wary of making an attempt next year because, as Brownback said during an interview this month, Kansas legislators intend to focus on boosting funding for pensions.
“After having done so much pension reform work, there’s a desire to see if what we’ve done was done right,” said Sen. Jeff King, an Independence Republican who helped draft past pension legislation.
Because Kansas has been trying to close the KPERS funding gap, its contributions to pensions have more than doubled over the past decade, from $241 million in the 2005 budget to almost $604 million for the fiscal year beginning July 1.
But the debate over education funding is casting a spotlight on pension costs as Brownback and lawmakers await a Kansas Supreme Court ruling in a lawsuit claiming that the state isn’t spending enough money on its public schools.
School employees make up 55 percent of the 156,000 active members of the state pension system, and they’re nearly as dominant among retirees receiving benefits. Contributions to school employees’ pensions are expected to top $400 million under the next budget.
School employees’ pension costs, expected to top $400 million under the next budget, are paid for separately from Kansas’ base aid to public schools.
Currently, the base aid is set at $3,838, nearly 15 percent below a pre-Great Recession high of $4,492 per student. Many Republican lawmakers believe the state should get credit from the courts for covering rising pension costs for school districts.
Mark Tallman, a lobbyist for the Kansas Association of School Boards, said while funding pensions adequately is important and retirement benefits help recruit good teachers, “it probably isn’t going to have anything to do with reading scores going up.”
“Virtually all new money available for schools may be taken up by KPERS,” he said.