The compromise that Kansas Senate and House negotiators reached Tuesday on pensions for public employees might not sail through the two chambers, but it constitutes progress.
Among provisions is the establishment of a new plan for new employees as of 2014 that differs from the traditional plan of the Kansas Public Employees Retirement System but that, importantly, falls short of becoming a 401(k). Although the House had sought the 401(k) plan, arguing that it would ease the state’s financial risk, the Senate balked, as it should have, at the proposal, which would have resembled plans common in private industry. Having a 401(k) would have unnecessarily complicated an already complex system and over time undermined the pension plan.
The proposal might have been more defensible had the state been more responsible in recent decades; instead, its reluctance to contribute adequate sums has added to the present situation in which reforms are necessary to ensure KPERS’ integrity. The $8.3 billion gap between KPERS’ anticipated revenues and the benefits promised to retirees through 2033 exists largely because the state hasn’t contributed as it should have.
To begin to close the funding gap, the Legislature last year increased the state’s contribution and gave public employees the option of boosting their own contributions or settling for smaller benefits. That helped, but didn’t go far enough.
The compromise reached Tuesday calls for the plan to pay new hires as of 2014 5.25 percent interest on both the state’s and employees’ contributions. The state could increase that amount in years in which KPERS earns more than 8 percent. Senate negotiators had sought 6 percent while House negotiators sought 5 percent. When employees retire, they would receive a lump sum that can be converted into an annuity.
Importantly, negotiators also agreed on what seems to be a reliable plan to chip away at the fund’s projected shortfall: casinos revenue. They decided to transfer 50 percent of the state’s share of casino profits to KPERS as of July 2013. It isn’t clear how much money that would be, but advocates estimate it loosely at several billion in the next two decades. Those withdrawals would be in addition to the $10.5 million a year in casino revenues the state has earmarked for engineering programs at the Kansas Board of Regents institutions (suggesting that the state could be as addicted to casino revenues as some gamblers are to the games themselves).
As is the case with compromises, this one is flawed. Perhaps most important, while being fair — though not quite generous — to present and future state employees, it provides a way to make up a massive funding shortfall that otherwise threatens the retirements of tens of thousands of Kansans.