A Defined-Contribution Option Doesn’t Address the UAL:
- A defined-contribution option contains NO components designed to address or reduce the Unfunded Actuarial Liability (UAL). In fact, it makes the problem worse.
A Defined-Contribution Option Comes with Costs the State Simply Can’t Afford:
- According to the State’s own actuary, between now and 2060, implementation of a single defined-contribution plan will cost the state $10.9 Billion more than the plan set out in 2011 HB 2194. This is due to the fact that under HB 2194, the UAL will be paid off by 2035.
- Even if calculated using today’s dollar value, a defined-contribution plan will still cost the state over $1 Billion more.
- Senator King’s proposed “hybrid” defined-contribution plan will still cost $1.7 Billion more than other cash-balance plans being discussed and $9.8 Billion more that HB 2194
- Adding a defined-contribution option would be an adminstrative nightmare for KPERS and dramatically increase costs. Currently, KPERS administrative costs are $44 per member. By contrast, information provided by the State of Nebraska shows administrative costs for defined contribution plans reaching $92 per member, more than double the current KPERS cost.
Defined-Contribution Option Diminishes Return for Retirees:
- Income replacement models for a defined-contribution plan are misleading as they are calculated on an assumed 8% return. This level of return is unlikely under employee self-directed plans.
- In 1991, West Virginia moved to a defined-contribution plan for their teachers. After 17 years, in arguably a much more robust economy, the average total account balance was only $33,944. This led West Virginia to abandon its defined-contribution plan.
- Under a defined-contribution option, ALL of the risk is shifted to the employee.