House Bill 2311
House Bill 2311 poses the biggest risk to Kansas public employees, public employee retirees, and taxpayers in the 2011 legislative session. HB 2311 is the defined contribution bill, which would create a new tier for all new public employees after July 1, 2011, who would be entered in to a defined contribution plan, as opposed to the current KPERS defined benefit plan.
The KPERS defined benefit plan provides:
- Higher retirement benefit than any defined contribution plan; and
- Guaranteed retirement benefits until death, which a defined contribution plan cannot provide.
According to the KPERS consulting actuary in testimony presented to the House Pensions and Benefits Committee on January 24, 2011, HB 2311 will “cripple the defined benefit plan.”
The current defined benefit plan offered by the KPERS system is the superior method of ensuring (i) short- and long-term retirement security for Kansas public employees and public employee retirees and (ii) protecting Kansas taxpayers from bearing the full obligation for financing public employee retirements. Consider that:
- Defined benefit plans require substantially less in employer and employee contributions than defined contribution plans and, therefore, reduce the obligation of Kansas taxpayers to fund Kansas’ public employee retirements;
- State and local governments are exempt from the federal Employee Retirement Income Security Act (ERISA) Pension Benefit Guaranty Corporation (PBGC) tax, which creates a competitive advantage for state and local governments offering defined benefit plans over defined benefit plans offered by private industry;
- The KPERS defined benefit plan assures a source of retirement income security for Kansas public employee retirees that will not be available under any defined contribution plan by reducing the likelihood of those retirees and future retirees relying on public assistance during retirement; and
- The KPERS defined benefit plan offers longevity risk pooling unavailable in defined contribution plans and, therefore, produces superior investment returns at less operational and management cost than a defined contribution system.
Shifting KPERS from a defined benefit system, even if for future public employees, does not eradicate the unfunded actuarial liability of the KPERS fund. In fact, the creation of a defined contribution plan for KPERS, which will remove revenues used to reduce the unfunded actuarial liability, will only accelerate the insolvency of the KPERS fund for current KPERS members and retirees from FY 2033 to an uncertain, though more immediate, date in the future, and place the entire KPERS funding obligation upon Kansas taxpayers.
- House Pensions & Benefits tables defined contribution bill, March 16, 2011
- House Pensions & Benefits: Committee hears defined contribution bill, March 7, 2011
Research Resources of Defined Benefit & Defined Contribution Plans:
- A Better Bang for the Buck: The Economic Efficiencies of Defined Benefit Pension Plans, Beth Alemeida and William B. Fornia, FSA, National Institute on Retirement Security.
- KPERS 2010 Comprehensive Annual Financial Report, Kansas Public Employees Retirement System (Nov. 12, 2010) (FY 2010 Average Contributions as a Percent of Total Payroll Per Group Equaled 12.6% for the State Group; 12.2% for the School Group; 10.4% for the Local Group; 22.0% for the KP&F Group; and 26.1% for Judges Group.).
- NCPERS Research Series: The Top 10 Advantages of Maintaining Defined Benefit Plans, National Council of Public Employee Retirement Systems (Jan. 2011).
- “Pension bond will benefit taxpayers: The state will save $24 million first year alone,”Charleston Daily Mail, Editorial, Page P4A (June 14, 2005).
- White Paper: Myths and Misperceptions of Defined Benefit and Defined Contribution Systems, National Association of State Retirement Administrators, at 2-3 (Nov. 2002, rev. Feb. 2005).
- House Pensions & Benefits: KPERS Actuary lays factual foundation for 2011 legislative session, January 24, 2011 (available at ).
- Traditional Defined Benefit Pension Plans: A Tried and True System That Benefits Taxpayers, National Conference of Public Employee Retirement Systems (NCPERS).
- Presentation to the House Pensions and Benefits Committee: Actuarial Principles and Funding, Patrice A. Beckham, KPERS Consulting Actuary, Cavanaugh MacDonald Consultants, LLC, at 5 (Jan. 24, 2011).
- “Wisconsin one of 41 states where public employees earn more,” by Dennis Cauchon, USA Today, March 1, 2011 (ranking Kansas 49th nationally for public employee pay and illustrating that public employees in Kansas, on average, make $3,229 less than private market counterparts).
- State of Kansas: Salary Survey Report, The Hay Group, January 2007 (report commissioned by the Kansas Legislature, finding that Kansas public employees make, on average, 25 percent less than private market counterparts).