Legislators reaching crunch time for making decisions on future of KPERS

A special commission that has been studying the state’s public employee retirement system is nearing some crucial decisions that could affect the lives of thousands of Kansans.

The commission is scheduled to spend Wednesday and Thursday debating whether to recommend a new retirement plan design and modifications to the current one.

“We have a big task ahead of us,” said Rep. Mitch Holmes, R-St. John, who co-chairs the Kansas Public Employees Retirement System Study Commission.

KPERS provides retirement benefits to state, local government and school employees and has nearly 280,000 members.

Pensions are financed through contributions from employees and employers and investments made by the system.

Employees who have retired receive a “defined benefit” based on how long they worked and how much they made on average in the final years of employment. For example, a typical worker earning $40,000 a year, who worked for 20 years will receive an annual pension of $14,000.

A combination of inadequate funding and record-making investment losses in 2008 have hurt the long-term funding status of the system. Many states have faced the same problem as Kansas.

Some have argued that Kansas should convert to a 401 (k)-style “defined contribution” system, but others have said that would do nothing to solve the existing funding gap.

Holmes said another proposal that has caught some attention is what is called a “stacked hybrid system” in which salaries below a certain level would continue under the current pension plan, while earnings above that level would go into a 401 (k)-style plan. If Kansas were to adopt this plan, it would be the first state in the nation to do so.

But others argue that what the Legislature has already done is enough to solve the long-term funding problem.

During the last legislative session, legislators and Gov. Sam Brownback approved House Bill 2194, which would increase employer contribution rates and provide an option for some employees to contribute more in exchange for increased retirement benefits. However, those changes won’t take effect unless the Legislature acts on bills recommended by the KPERS Study Commission during the 2012 session that starts in January.

KPERS officials have said those additional employer and employee contributions and plan design changes in HB 2194 “are a meaningful step towards improving the system’s long-term funding outlook and reaching actuarially required contribution levels.” But the system is still vulnerable to future economic downturns that cause investment returns to decline, KPERS officials said.

One commission member, Sen. Laura Kelly, D-Topeka, said HB 2194 “is still alive and part of the process.” Rep. Geraldine Flaharty, D-Wichita, who serves on another pension committee, said HB 2194 “is a reasonable plan” that solves the funding problem.

By Scott Rothschild

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