Morning Sun
  • Changes loom for KPERS

  • Decisions half a state away could have big ramifications for many locals, as a series of changes to the Kansas retirement system could affect educators, firefighters, police and other city and state employees.

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  • Decisions half a state away could have big ramifications for many locals, as a series of changes to the Kansas retirement system could affect educators, firefighters, police and other city and state employees.
    Although the final impact is as yet undecided, many local officials are keeping their eyes on Topeka to see what happens to the Kansas Public Employees Retirement System (KPERS).
    The Problem
    In order to understand the problem and potential solutions for KPERS, it’s important to understand how it works now.
    To retire, an employee must have a combined age and years of service equal to or greater than 85.
    In effect, the current plan offers retirement benefits based upon the average of the top three years of an employee’s salary, the years of experience, and a multiplier, before annual benefits are determined. Very crudely, a person whose top years averaged to $50,000 who worked for 35 years would receive an annual benefit of a little more than $30,000. Additionally, employers are now required to put in 0.6 percent every year.
    The problem involves a number much greater than that: $7.7 billion. That’s one estimate the Associated Press reports is the difference between what is already funded and what is promised to retiring workers. Legislators are using that as the reason why the current system needs to change.
    It’s also a number that some say shows the problems the Legislature has caused.
    “The problem is the state has never fully funded KPERS like they should have,” said Tom Westhoff, Pittsburg State Classified Senate president. “The employees have always done our part. It’s mandatory that we give in a certain percentage of our salaries.”
    Right now, that percentage is at 4 percent for those hired before July 1, 2009, called Tier 1 workers, and at 6 percent for those hired after that date, called Tier 2.
    Got all that? Good.
    At this time, there is not one concrete plan to explain everything that would go into effect. Instead, there’s a House plan and a Senate plan, and at some point a legislative conference committee will have to find a way to reconcile the two. But the two have fundamental differences.
    House plan
    Wednesday, the House advanced a bill that would drastically change the Kansas retirement system. The biggest portion, only recently added to the bill, would switch KPERS from a guaranteed benefit plan to a guaranteed contribution plan, which would resemble a 401(k) plan.
    There are several versions of the House’s plan, but local lawmakers described the details of the latest, most prominent version.
    First, the House plan would reduce the benefits multiplier from 1.75 to 1.4 starting after July 12, 2012.
    Second, the plan would increase the employer contribution from 0.6 percent to 0.8 percent. The state could help pay for this with net proceeds from the sale of any state property going to help pay for KPERS. The state would increase the annual contribution by $10 million starting in 2013.
    Page 2 of 3 - Senate plan
    The first part of the Senate plan depends a bit on the Tier 1/Tier 2 distinction.
    Tier 1 employees already paying 4 percent of their salaries to KPERS would see that rise to 6 percent, but would also get a cost of living adjustment (COLA) and the multiplier would increase from 1.75 to 1.85.
    Tier 2 employees would have a choice under the Senate plan. One option is to stay at the current 6 percent and receive no COLA and stay at the current multiplier. The other option is to jump from 6 percent to 8 percent, but receive the COLA and the multiplier increase to 1.85.
    Second, the employee contribution would be required to jump from 0.6 percent to 1.1 percent, and the Associated Press reports the Senate measure would increase the stat contribution by $23 million.
    This plan would not drastically change the system to a 401(k) necessarily, but would create an 11-member commission to investigate the possibility of future, more drastic changes that could switch from the current guaranteed benefit to a guaranteed contribution or some type of hybrid plan.
    Legislative reaction
    State Rep. Doug Gatewood, D-Columbus, said that he would not support the House plan (HB 2333) and believes the state would be “balancing the budget on the backs of the state employees.”
    He said that he preferred the Senate’s plan to the House’s plan because “the multiplier is greater, and it is more fair to the promise we made to the employees.” He said he was undecided about the portion of the House bill that calls for a switch to a 401(k)-type plan.
    “I don’t know what to make of that defined contribution instead of a defined benefit package,” Gatewood said. “With market fluctuations, retirees don’t know what to budget for. The state has not funded its share. We are balancing the budget on the backs of schools and state employees.”
    Rep. Bob Grant, D-Cherokee, said he also does not like the House plan, but cites other reasons.
    “I know I’ve received a lot of e-mails. My own opinion is if they dropped the multiplier from 1.75, they would be messing with something the state agreed to when they started KPERS,” Grant said. “If this goes to court, and I think there is going to be a lawsuit, I think that might be a darn good lawsuit.”
    On the state Senate side, Sen. Bob Marshall, R-Fort Scott, said that he recognizes the difficulties with changing from a direct benefit to a direct contribution system, but it will ultimately be necessary. However, he touted the Senate’s plan and said he knows it will hurt, but it will pay off in the long run.
    “It will cause hardships for employees,” Marshall said. “But there’s going to be a lot more hardship if the system goes bankrupt and there’s no protection. I know it’s a problem when you cut 2 percent of pay, but you get something more down the road. Pay more now, and you get more when you retire.”
    Page 3 of 3 - Rep. Terry Calloway, R-Pittsburg, could not be reached for comment.
    Local reaction
    According to the City of Pittsburg’s numbers, two of the city’s top seven employers have employees that fall under the KPERS system, including the city’s top employer, Pittsburg State University, with more than 1,000 employees. (The other is the City of Pittsburg itself, with close to 200 employees.) That’s a lot of people in this area that could be affected by any changes in KPERS.
    Tom Westhoff, Pitt State Classified Senate president, said the idea of a 401(k)-type system is a little alarming.
    “We prefer to keep it as it is as a direct benefit,” Westhoff said. “We don’t know how they’d fund KPERS in a 401(k). We know a lot of people lost a lot of money when the stock market crashed. If [Legislature] would just fully fund [existing KPERS], a lot of problems would take care of themselves.”
    Megan Fry, City of Pittsburg human resources director, echoed many of Westhoff’s concerns. She said she’s not sure what the final bill will look like, which makes it hard to say exactly how city employees would be affected.
    “People have a concern with the reduction in multiplier and an increase in their contributions,” Fry said. “People are waiting to see what will happen. There is no rush to judgment. They’ll wait until we know what the final bill looks like before any challenges take place.”
    But Fry said that the changes in KPERS could have another effect, with those near retirement choosing to retire before changes go into effect.
    “If we do have a lot of people retire because of this, we’re losing lots of experience,” she said. “We have a concern when we’re looking at those positions. A lot of people close to retirement are very knowledgeable. They know where the water lines are, where sewer lines are hidden and how things get fixed. We could be losing that experience.”
    Westhoff sees the effect of KPERS changes as being both emotional for employees and practical through their pocketbooks.
    “I think it will have a negative morale effect,” he said. “Some came to the job based on the benefits and expecting them to stay the same. So they signed on and it is scary to see [the Legislature] change things so drastically. Some, it could change things by $100. If you’re making $50,000-$75,000, it might not be a big issue. But if you’re making $25,000-$35,000, that could mean paying a bill.”
    Andrew Nash can be reached at andrew.nash@morningsun.net or by calling 231-2600 ext. 132.

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