In 2011, the Legislature passed House Bill 2194. The bill requires the state to meet its employer contribution and modestly increases rates for current KPERS members and new employees coming into the system in exchange for modest cost-of-living-adjustments and increases in the retirement benefit formula for all future years of service. More importantly, the bill would address the KPERS unfunded liability by year 2035, while continuing to guarantee adequate retirement benefits for KPERS members.
However, a provision of the bill prohibits the legislation from going into effect until the Legislature votes on the plan developed by the KPERS Study Commission. Unless both chambers of the Legislature vote “up or down” on the Study Commission’s plan, HB 2194 will be stricken from the books. The KPERS Study Commission proposed moving KPERS to a costly defined-contribution system that failed to address the unfunded liability and scaled back benefits for KPERS members. The Senate has voted down the Study Commission plan, but the House of Representatives has refused to take any action that might trigger the provisions of HB 2194.
This is unfortunate since HB 2194 is still the most economical plan for the state. It addresses the unfunded liability, which has become a budget albatross, and costs far less than any other plan currently being discussed in the Legislature. Cost projections provided by the KPERS own actuary, Cavanaugh Macdonald Consulting, LLC, bear this out.
From year 2012 through year 2060, HB 2194 costs $22.1 billion, again with the unfunded liability being paid off in 2035. The KPERS Study Commission Plan would cost $33 Billion with the unfunded liability remaining unaddressed. Both the House and Senate are currently considering what is known as a Cash Balance plan, which is a hybrid defined-benefit plan where retirees receive the dollar value of contributions they and the employer make plus a guaranteed annual interest credit rate. At retirement, the “cash balance” for each employee is converted to a lifetime annuity. However, again based on KPERS actuary cost projections, from year 2012 through 2060 this plan would cost $8 billion more than HB 2194.
It appears the effort to move KPERS from the current defined-benefit system isn’t based on any fiscal considerations, but on a philisophical desire to follow the failures of the private sector and place the retirement plans of KPERS members in the hands of Wall Street special interests.
The Legislature is currently dealing with many complicated issues, but the resolution to KPERS reform couldn’t be more clear. House Bill 2194 is the only option if fiscal conservatism and common sense are going to dictate these important decisions.