Governor Brownback and the Kansas Legislature have been scrambling to fill the $380 million hole in this year’s state budget, with more than a $400 million deficit expected next year. The state’s pension system for public employees has been targeted as a source to defray some of that shortfall.
Public employees include law enforcement personnel, judges, public school personnel, firefighters, state workers (including college and university staff, but not professors), county and municipal workers, and legislators. When these folks retire, their pension is paid from the Kansas Public Employees Retirement System (KPERS). Approximately 280,000 Kansans now participate in KPERS.
Both the employee and the employer pay into the KPERS Trust Fund. About 1,500 local units of government and the state pay monthly into the retirement system as the employers’ share.
The share paid by employees into the retirement system has increased in recent years from four percent to six percent of their wages; however, the state’s contribution to each person’s retirement has not increased. Furthermore, the state has not paid its full share for most of the last 20 years, resulting in a debt to the retirement fund of about $10 billion (this debt is known as the Unfunded Actuarial Liability).
The governor and some legislators have been trying to change the retirement system from a “defined benefit” system to a “defined contribution” system. “Defined benefit” means that retirees can compute when they retire the amount of the pension they will receive after retirement, a formula based on years served and salary.
A defined contribution plan, like a 401(k) plan, is much more uncertain. Instead of funneling a retiree’s contributions, combined with the employers’ into the pension pool, individual accounts are set up for each employee. Consequently, the amount of benefits at retirement is based on market trends over time.
The greatest concern regarding KPERS financial security is the Unfunded Actuarial Liability (UAL). The present KPERS system and the newly approved cash balance system allow all contributions made to KPERS (by employee or employer) to be placed in the KPERS Trust Fund. If further changes were to be made in KPERS by substituting a 401(k)-type plan, the funds deposited in behalf of each employee would be required by law to be held in separate individual accounts. This would greatly reduce the potential money available in the Trust Fund for investment purposes to reduce the UAL. A change to a 401(k)-type of plan would therefore actually increase the UAL rather than reduce it.
No one currently in the KPERS system is receiving an annual COLA (Cost of Living Adjustment). The last COLA was enacted in 1998, authorized for those who retired prior to July 1, 1997. Of those presently receiving KPERS benefits, 67 percent have not received any of these enhancements; meanwhile, the cost of living has increased more than 40 percent. To make matters worse, the legislature has not met its actuarial recommended contribution rate for nearly 20 years.
According to the Kansas Coalition of Public Retirees, the average KPERS benefit is approximately $1,100 monthly. Less than 1.22 percent of KPERS retirees receive more than $50,000 annually in KPERS benefits, while 34 percent receive $500 monthly or less, and 5 percent receive $100 monthly or less. KPERS benefits are presently equal to approximately 50 percent of the retiree’s final average salary for an employee working 29 years.
These retirees continue to contribute to the state’s economy. KPERS benefits paid to retirees contribute more than $77 million a month into the Kansas economy, and 90 percent of KPERS retirees still live in Kansas.
In a measure to address the state’s budget deficit, Governor Brownback urged the legislature to slash state contributions to KPERS by withholding $58 million this year, a move that would delay by 10 years — until 2043 — the projected break-even point for the pension program.
The governor also urged the 2015 Legislature to authorize issuance of $1.5 billion in bonds to provide investment capital to the KPERS portfolio. Trustees of the system would invest borrowed cash with the goal of generating long-term profits while also paying off bond obligations.
At a rally of public employees last week, House Minority Leader Tom Burroughs, a Kansas City Democrat, said actions undermining the integrity of the system have betrayed people who dedicated themselves to government service.
“Your pension plan, KPERS, was our commitment to you for standing up and taking these jobs,” he said.
Now the governor and some legislators want to continue their callous treatment of public employees by once again attacking the pension system
Callous treatment of public employees
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