(TOPEKA)–The following is a statement from Lisa Ochs, Chair of Keeping the Kansas Promise Coalition, in response to Governor Brownback’s latest risky experiment proposing to move the State’s public employee pension system (KPERS) to a defined contribution or 401(k) style system as presented to at a joint legislative hearing today.

“It is unfortunate that Governor Brownback is continuing to promote a risky defined contribution style approach for the Kansas Public Employee Retirement System (KPERS).  During the prolonged KPERS debate over the last year, one irrefutable fact has been made very clear: a defined contribution plan will cost Kansas taxpayers billions more in their hard earned money and put Kansas public sector workers at risk while only benefitting special interests. No secret junkets to meet with well connected special interests can change this fact.

It’s apparent the primary goal of the Governor’s latest scheme is to direct money out of KPERs towards tax cuts for millionaires and corporations. The Governor’s own budget document confirms this: “from changing those non-vested members with less than five years of service to the new system and the former statutory required KPERS payment would be used to eliminate the state individual income tax.”

The 2012 Legislature passed, and Governor Brownback signed into law, a new landmark cash balance reform measure that puts KPERS on a path to stability while also addressing the unfunded liability issue.  As the Executive Director of KPERS testified early this session before the House Appropriations Committee, the cash balance plan shores up the system and positions Kansas to extinguish the unfunded liability by 2033.  A defined contribution plan does nothing to address the unfunded liability issue.  If allowed to go into effect, the cash balance plan will ensure dedicated public employees, whether they be state road workers, local fire fighters, or school teachers a chance to have an adequate retirement they can count on.

KPERS retirees and their families deserve far more than to be used as ATMs for the Governor’s well-heeled friends.”

It was clear from reading the February 9 editorial “Get a handle on soaring pension costs in Kansas,” that the author either failed to research all the facts or is simply unable to understand the big picture.  This is not meant to be a full-throated criticism, let’s face it, pension and retirement issues are extremely complicated whether the topic is social security or public sector retirement systems.  But, several inferences made by the editorial warrant further clarification and elaboration.

First, everyone acknowledges the Kansas Public Employees Retirement System (KPERS) is facing tremendous financial pressure, as are many retirement systems across the country.  This is not good for taxpayers, government employers or current and future public employees.  The editorial does paint a pretty accurate picture of the causes for the most pressing problem, the unfunded liability.  The stock market crash did contribute significantly to the current unfunded liability figure exceeding $9.2 billion.

However, the consistent failure of state legislatures over decades to fund the appropriate employer share to ensure the system stay on a sound financial footing, even when stocks experienced dips, is also a huge reason KPERS finds itself in the predicament it’s in today.  And, we all have to recognize, that know matter your view point on the matter, the unfunded liability is a debt that can’t simply be written off, it is a legal responsibility and has to be paid

Second, the editorial’s headline itself diminishes the reality that the 2012 Legislature passed, and the Governor signed into law, a new cash balance style reform measure that will allow Kansas to “get a handle” on pension costs going forward.  This landmark legislation puts KPERS on a path to stability and sustainability in a fair and balanced way by asking both employers (that means mainly state and local governments to pay more into the system) and employees to pay more.   The new cash balance approach will shore up the system and still ensure our dedicated public employees, whether they be state road workers, local fire fighters, or school teachers, an adequate retirement they can count on.

It’s unfortunate Governor Brownback and his special interest allies are still promoting a move to a defined contribution style plan.  The facts behind this approach fall short of making the case Kansas should head in that direction.  The defined contribution plan advocated by the Governor prior to the 2012 cash balance law being passed, would have cost taxpayers billions more while failing to address the unfunded liability issue. Considering the state’s current budget mess, this style of plan is simply unsustainable. Furthermore, other state’s, like West Virginia, have already tried defined contribution plans and abandoned them because their public employees were headed towards retiring into poverty.

Alan Conroy, the Executive Director of the KPERS recently confirmed before the House Appropriations Committee that the new 2012 cash balance law puts Kansas on a path to extinguish the unfunded liability by 2033.  We all know that big problems often require difficult and balanced solutions.  The new cash balance law appears to be the best, difficult solution out there.  It truly is the only realistic policy option we have that will stabilize the system while also protecting both our taxpayers and dedicated public employees who we count on everyday to keep our state and communities safe and great.

(TOPEKA)–The following is a statement from Lisa Ochs, Chair of Keeping the Kansas Promise Coalition, in response to Governor Brownback’s proposal to reopen the debate to move the State’s public employee pension system (KPERS) to a defined contribution or 401(k) style system as presented to the House Pensions Committee today by State Budget Director Steve Anderson.

“It is unfortunate that Governor Brownback is continuing to promote a defined contribution style approach for the Kansas Public Employee Retirement System (KPERS).  During the prolonged KPERS debate over the last year, one irrefutable fact has been made very clear: a defined contribution plan will cost Kansas taxpayers billions more in their hard earned money while benefitting special interests.  In addition, the Governor’s proposal to take on more bonded indebtedness to address the unfunded liability issue actually extends the payment period to 2050 and is unwise and fiscally irresponsible.

The 2012 Legislature passed, and Governor Brownback signed into law, a new landmark cash balance reform measure that puts KPERS on a path to stability while also addressing the unfunded liability issue.  As the Executive Director of KPERS recently testified before the House Appropriations Committee, the cash balance plan shores up the system and positions Kansas to extinguish the unfunded liability by 2033, seventeen years sooner than the Governor’s new plan.  If allowed to go into effect, this plan will ensure dedicated public employees, whether they be state road workers, local fire fighters, or school teachers a chance to have an adequate retirement they can count on.”

The Keeping the Kansas Promise Coalition, a group of public employee organizations including teachers, firefighters, police officers, state, city and county employees dedicated to fair and affordable reforms to the Kansas Public Employees Retirement system (KPERS), announces their preferred list of incumbent legislators involved in general election contests.

Reforming the state’s public employee pension system (KPERS) was one of the few tough issues successfully addressed by the 2012 Kansas Legislature.   Facing an unfunded liability in excess of $8 billion, the Legislature embarked on efforts to shore up the system and ensure dedicated public employees at both the state and local level would have an adequate retirement they could count on.

Originally, the Governor and others preferred a movement towards a more costly 401k-styled defined contribution plan that would have added costs to taxpayers estimated in the billions and appear to only benefit Wall Street special interests.  By the end of the session, all parties were able to come together around a compromise plan that responsibly addresses the KPERS unfunded liability over the long-term by increasing contributions by both employer and employees, changing benefits and utilizing some gaming revenues.

The legislative compromise created a new approach that would create a “cash balance” styled plan for new employees coming into the system. The cash balance plan is similar to the current KPERS plan as it is a type of defined benefit plan. Under the new plan, the employer and employee would each contribute to the plan and the investment would have a guaranteed annual return. Upon retirement, it would be transitioned into an annuity and pay a defined monthly benefit based upon the total contributions to the plan. While this would be a somewhat smaller benefit than that offered in the current KPERS system, it would still be a consistent, defined benefit paid over the retiree’s entire life.

Lisa Ochs, Chair of the Coalition said, “KPERS reform is always a difficult issue for policymakers to grasp. But what is clear is that there are those in the Legislature who chose to ignore the fact that over the years the state has failed miserably to meet its obligation to state retirees and want to force punitive reforms upon retirees for no reason.  Thankfully, others recognized the state’s past failures and worked toward more fair and equitable reforms that will strengthen the system for current and future retirees.”

The following is a list compiled by Keeping the Kansas Promise Coalition of Kansas of state legislators who stood in support of the thousands of state retirees and their families and have general election opponents: **

Senators who STRONGLY SUPPORT STATE RETIREES

Jay Scott Emler                       R-Lindsborg                 District 35

Oletha Faust-Goudeau                        D-Wichita                     District 29

Marci Francisco                                   D-Lawrence                 District   2

David Haley                             D-Kansas City              District  4

Anthony Hensley                      D-Topeka                     District  19

Tom Holland                           D-Baldwin City             District 3

Laura Kelly                              D-Topeka                     District 18

Kelly Kultala                            D-Kansas City               District 5

Jeff Longbine                          R-Emporia                   District 17

Allen Schmidt                         D-Hays                         District 40

Vicki Schmidt                          R-Topeka                     District 20

Representatives who STRONGLY SUPPORT STATE RETIREES

Barbara Ballard                                   D-Lawrence                 District 44

Barbara Bollier                                    R-Mission Hills             District 21

Mike Burgess                            R-Topeka                     District 53

Tom Burroughs                                    D-Kansas City              District 33

Sydney Carlin                          D-Manhattan                District 66

Nile Dillmore                           D-Wichita                     District 92

Bill Feuerborn                          D-Garnett                     District 5

Gail Finney                              D-Wichita                     District 84

Geraldine Flaharty                   D-Wichita                     District 98

Sean Gatewood                                   D-Topeka                     District 50

Bob Grant                                D-Frontenac                 District 2

Jerry Henry                               D-Cummings                District 63

Don Hill                                               R-Emporia                   District 60

Annie Kuether                        D-Topeka                     District 55

Harold Lane                             D-Topeka                     District 58

Ann Mah                                  D-Topeka                     District 54

Melanie Meier                         D-Leavenworth             District 41

Jan Pauls                                 D-Hutchinson               District 102

Eber Phelps                             D-Hays                         District 111

Louis Ruiz                                D-Kansas City               District 32

Annie Tietze                            D-Topeka                     District 53

Ed Trimmer                             D-Winfield                    District 79

Jim Ward                                 D-Wichita                     District 86

Vince Wetta                             D-Wellington                District 116

Kathy Wolfe Moore                  D-Kansas City              District 36

** For the full list of legislative ratings go to: http://www.keepingthekansaspromise.com/ksleg/state-legislators-who-stood-in-support-of-kpers-retirees/

Keeping the Kansas Promise is a group of public employee organizations including teachers, firefighters, police officers, state, city and county employees, formed to collectively advocate for fair and affordable reforms to the Kansas Public Employees Retirement System to ensure the long-term solvency of the system.

This year, faced with an $8 billion dollar unfunded liability in Kansas’ public employee pension plan (KPERS), the Legislature embarked on reform efforts to shore up the system. Governor Brownback’s position was quickly, and forcefully, staked out in his State of the State address.  The Governor implored legislators to transition KPERS to a costly defined-contribution plan and limit benefits for retirees while shifting all the risk of funding the system from the State to retirees. While the plan was hailed by some legislators simply looking to rubber stamp the Governor’s agenda, and appease Wall Street special interests who stood to make money from new account investment fees, other legislators saw the blatant unfairness of limiting benefits while shifting all the burden to public sector retirees.

In the end, under the bipartisan leadership of Senate President Steve Morris and Senator Laura Kelly, the Legislature crafted a new approach that would create a “cash balance” styled plan for new employees coming into the system. The cash balance plan is similar to the current KPERS plan as it is a type of defined benefit plan. Under the new plan, the employer and employee would each contribute to the plan and the investment would have a guaranteed annual return. Upon retirement, it would be transitioned into an annuity and pay a defined monthly benefit based upon the total contributions to the plan. While this would be a somewhat smaller benefit than that offered in the current KPERS system, it would still be a consistent, defined benefit paid over the retiree’s entire life.

During the course of the legislative session, there were numerous attempts to force state retirees into the defined-contribution plan coveted by the Governor.  However, these efforts failed to gain approval.

KPERS reform is always a difficult issue for policymakers to grasp. But what is clear is that there are those in the Legislature who choose to ignore the fact that the state has failed miserably to meet its obligation to state retirees and want to force punitive reforms upon retirees for no reason.  Thankfully, others recognize the state’s failures and worked toward more fair and equitable reforms that will strengthen the system for current and future retirees.

The following is a list compiled by Keeping the Kansas Promise Coalition of Kansas of state legislators who stood in support of the thousands of state retirees and their families.

 Senate 

Marci Francisco (D) – District 2

Tom Holland (D) – District 3

David Haley (D) – District 4

Kelly Kultala (D) – District 5

Terry Huntington* (R) – District 7

Tim Owens (R) – District 8

John Vratil* (R) – District 11

Dwayne Umbarger (R) – District 15

Jeff Longbine (R) – District 17

Laura Kelly (D) – District 18

Anthony Hensley (D) – District 19

Vicki Schmidt (R) – District 20

Roger Reitz (R) – District 22

Pete Brungardt  (R) – District 24

Jean Schodorf (R) – District 25

Oleatha Faust-Goudeau (D) – District 29

Carolyn McGinn (R) – District 31

Ruth Teichman (R) – District 33

Jay Scott Emler (R) – District 35

Stephen Morris (R) – District 39

Allen Schmidt (D) – District 40

House

Doug Gatewood* (D) – District 1

Bob Grant (D) – District 2

Caryn Tyson (R) – District 4

Bill Feurerborn (D) – District 5

Jerry Williams* (D) – District 8

Kay Wolf (R) – District 19

Barbara Bollier (R) – District 21

Mike Slattery* (D) – District 25

Pat Colloton (R) – District 28

Sheryl Spalding (R) – District 29

Stan Frownfelter (D) – District 31

Loius Ruiz (D) – District 32

Tom Burroughs (D) – District 33

Valdenia Winn (D) – District 34

Broderick Henderson (D) – District 35

Kathy Wolfe Moore (D) – District 36

Mike Peterson (D) – District 37

Melanie Meier (D) – District 41

Barbara Ballard (D) – District 44

Tom Sloan (R) – District 45

Paul Davis (D) – District 46

Sean Gatewood (D) – District 50

Trent LeDoux (R) – District 51

Lana Gordon* (R) – District 52

Mike Burgess (R) – District 53

Anne Tietze (D) – District 53

Anne Kuether (D) – District 55

Harold Lane (D) – District 58

Don Hill (R) – District 60

Jerry Henry (D) – District 63

Vern Swanson (R) – District 64

Sydney Carlin (D) – District 66

Bob Brookens* (R) – District 70

Bill Otto (R) – District 76

Ed Trimmer (D) – District 79

Jo Anne Pottorff* (R) – District 83

Gail Finney (D) – District 84

Judy Loganbill (D) – District 86

Jim Ward (D) – District 86

Melody McCray-Millar (D) – District 89

Nile Dillmore (D) – District 92

Geraldine Flaharty (D) – District 98

Jan Pauls (D) – District 102

Ponka-We Victors (D) – District 103

Eber Phelps (D) – District 11

Bob Bethell (R) District 113

Vince Wetta (D) – District 116

Ward Cassidy (R) – District 120

* = Retiring

An interesting read regarding 401(k) plans.

A two-income American family with an average income that dutifully invests in a 401(k) plan using typical strategies will lose $155,000 – or about 30 percent of what they should have saved for retirement — to Wall Street fees, according to a study by an economic justice advocacy organization.

The Demos study, released last month, is just the latest in a long string of research showing 401(k) plans are a better deal for Wall Street than for you. Many show that people lose about one-third of their retirement money to fees that they don’t even know they’re paying. The actual lifetime impact of fees is a matter of widespread debate, but it shouldn’t be. In one dramatic example, John Bogle, the inventor of index funds, demonstrated how fees can consume 80 percent of an investor’s money through something he’d dubbed “the tyranny of compounding fees.” (Click on the link to see his proof.)

But some relief may be on the way. Regulations first set in motion in in 2007 (!) will finally kick in next week. Soon, 401(k) statements will include a fact box — similar to the new info-boxes on credit card bills — that lists the fee rates (“expense ratios’) associated with fund selections and shows in dollars how much the investor paid.

The disclosure box is a welcome change, but it’s probably not going to make much of a difference, laments Robert Hiltonsmith, author of the Demos study.

“It will be underwhelming from a sticker shock point of view. It will not have the effect the doomsayers predict,” Hiltonsmith said. The dollar amounts shown will reflect annual amounts, not the real harm from loss of compounding growth, he said.  A 27-year-old with $10,000 invested in a mutual paying a 1 percent expense ratio will pay only about $100 in fees in a year, a number that will hardly inspire shopping around, Hiltonsmith figures.

But that benign-sounding 1 percent annual fee is the source of most 401(k) folly. Compounded, it can result in loss of one-third of retirement savings, or more.

Doing the math to determine real investing costs from fees is tricky. It involves a long series of assumptions on factors so individualized that no 401(k) projection model is easily generalized.  Instead, the Demos study and others like it are merely “for instance …” examples.

An obfuscator’s dream
Wall Street protectors use this to their advantage. The Investment Company Institute, which is critical of the Demos study and others like it, uses its own calculations to claim the average investor pays only $248 annually in 401(k) fees and $20,000 during their lifetime. Even that conservative estimate should be alarming, when the average 401(k) balances is $75,000, according to Fidelity Investments, and those close to retirement (ages 55-64) have an average balance of $100,000.

It doesn’t have to be hard to see how recurring fees devour much of your 401(k) money. Here’s a simple, if slightly imprecise, way to think about what happens when someone takes 1 percent of your money every year.  If you had a dollar, and someone took one penny every year for 30 years, you’d only have 70 cents at the end. That’s what investing in a 401(k) mutual fund does to your money. These fee losses are obscured by additional contributions you make, and by market ups and downs – complex 401(k) statements are an obfuscator’s dream — but there’s no way around it: Fees are killing most investors’ returns.

(If you are a stickler for math, more precise calculations will appear at the bottom of this column. They usually just muddy the conversation, however.)

How does Wall Street get away with this? Obscurity sure helps, but there is another element of human nature that the system was born to exploit and that most people seem incapable of avoiding: Behavioral economists call it “hyperbolic discounting.”  In short, Wall Street does a much better job of thinking about both time and money than you do.

Try this experiment, now oft repeated in the behaviorist world: If I offered you $50 today or $100 one year from now, which would you choose?  Most take the $50 and run.  Now, let’s do the same exercise with a slight adjustment.  If I offered you $50 five years from now, or $100 six years from now, which would you pick? Almost certainly the $100.   But notice: if I asked you the same question in five years, you’d probably take the $50 again.  That’s a funny way to think about money (the technical term is “dynamic inconsistency”).

The most obvious lesson from hyperbolic discounting is that people’s choices are often focused on immediate gratification.  But the other side of that coin, behaviorists tell us, is that people are too quick to discount rewards in the future and, to our point, to discount the impact of future financial pain. In other words, telling someone they might be missing $150,000 from their retirement account 30 years from now means almost nothing to them – they get angrier about a $35 overdraft fee taken last week from their bank account.  Wall Street’s genius is this: By stealing people’s money from the future, they avoid consumers’ wrath.

Perhaps it’s possible to educate all Americans on the tyranny of compounding investment fees; and creating a fact box on consumers’ quarterly statements that inspires them to shop around for lower-cost mutual funds is a step in that direction. But behavioral economists say that’s highly unlikely to make much of a difference.  Better to create a system that by default enters workers into low-cost, relatively safe investment vehicles and let them pick riskier, more expensive options if they wish, Hiltonsmith says.

“Even if there was more sticker shock, (workers) wouldn’t know what to,” he said. “The way things are now, we’re asking workers to take on a full-time job, to be financial experts.”

Anyone who thinks the current system is working is doing an awful lot of hyperbolic discounting when it comes to society’s future.  Perhaps the most sobering fact in the Demos study, one that Hiltonsmith downplayed, is that his “perfect” investing couple had only $350,000 in their 401(k) at the end of 40 years. Does anyone think Mr. and Mrs. Perfect can live for 20 years on $350,000?  And these two did everything right — they invested between 5 percent and 9 percent of their income every year, starting at age 25. They never stopped making contributions — which nearly everyone does during job changes or tough times — and they never made a withdrawal, which roughly one-third of investors do. Still, they were left with just $175,000 each at age 65.  Once and for all, that should expose the dirty little secret of 401(k) plans:

The math doesn’t work.

Now, onto the math assumptions from above.  For Demos’ model, Hiltonsmith created an imaginary couple who worked from 1966-2005. Each earned the median income for their gender during that time (a range from $50,000 to $70,000 total, annually) and socked away a slowly increasing amount of their income during that time, starting at 5 percent and ending at 9 percent. Half their money was invested in a stock fund, half in a bond fund. Average growth and average published stock and bond fund fees from 2010 were applied to their accounts, and average trading costs were also deducted. No employee match was considered in the calculation, given the wide variety of matching programs – and the fact that many firms suspended matching contributions during the recession. Of course, the couple is a pure abstraction — there were no 401(k) accounts in the 1960s.  But it takes this kind of modeling to create a hypothetical that covers an investor’s entire work life, and their potential lifetime loss from fees.

As for my “one penny” calculation: Taking one penny every year from a dollar is not the same as taking 1 percent, but it’s close.  Because the initial dollar amount drops with each deduction, each 1 percent annual hit is slightly less. To wit, 1 percent of 99 cents is less than 1 percent of 100 cents.  Do the math, and you’ll find taking one percent of someone’s money every year for 30 years is the equivalent of taking 26.03 percent. Still quite a lot of money for nothing.

What should you do with this information? Absent a better idea, put all your 401(k) money in an index fund, which will have fees that are 70 percent to 90 percent lower than standard mutual funds.  And watch your next quarterly statement for those depressing fee boxes. Most employers have two months to comply with the rules that take effect July 1, so you won’t start seeing the fee information until your first statement after Aug. 10.

Read original article here.

A Kansas state pension coalition announced today that it would officially oppose the agreement reached yesterday by House and Senate negotiators on a plan to reform the public employee retirement system (KPERS).  A legislative conference committee signed off on a proposal to place all new public employees hired after January 1, 2015 into a new “cash balance” style retirement plan.

Terry Forsyth, chair of the Keeping the Kansas Promise Coalition, said today, “Our coalition of dedicated public workers is unable to get behind any plan that will not provide for an adequate retirement benefit for our future members and cost the taxpayers billions of dollars more than necessary.  The most fiscally responsible option for KPERS reform continues to be enacting the provisions of 2011 House Bill 2194″

While no cost projections are currently available regarding the plan agreed to by legislative conferees, previous cost projections from KPERS’s actuary (click here), Cavanaugh Macdonald Consulting, LLC, show the cost to taxpayers of the cash balance plan to be $30 billion through the year 2060.  The same cost projections peg the cost of 2011 House Bill 2194 at $22 billion over the same time period.

“The cash balance plan being contemplated appears to be unsustainable,” said Forsyth.  “Layer on top of that future budget deficits created by the Legislature’s recently passed massive tax cut plan and they become pure fiscal fantasy. HB 2194 is a no-brainer if responsible KPERS reform is to be done this year.”

The Coalition did applaud Senators for rejecting a defined-contribution plan sought by the Governor and House leaders.  Forsyth said a defined-contribution plan would have been a costly boondoggle for the state, costing an estimated $10.9 billion more than HB 2194.

In 2011, the Legislature and Governor approved House Bill 2194, which requires the state to meet its employer contribution and modestly increases rates for Tier I and Tier II members and new employees coming into the system in exchange for cost-of-living-adjustments and an increase in the retirement benefit formula multiplier for all future years of service. The bill would address the KPERS unfunded liability by year 2035.

A provision of the bill prohibits the other provisions of HB 2194 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 not become law. The Senate KPERS Select Committee voted down the Study Commission plan, but the House has refused to take any action to trigger the provisions of HB 2194.

“At this point it appears reform efforts aren’t based on fiscal reality, but on an ideological desire to follow the failures of the private sector and shift all the risk from the state to retirees,” Forsythe said.  “Blindly moving to a system that increases costs to the state taxpayers while placing added burden on state retirees is not a fair pact for the thousands of Kansans who have spent their careers working to improve the lives of their fellow Kansans.”

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.

2011 HOUSE BILL 2194 STILL THE MOST ECONOMICAL SOLUTION TO KPERS REFORM

In 2011, the Legislature passed House Bill 2194, which requires the state to meet its employer contribution and modestly increases rates for Tier I and Tier II members and new employees coming into the system in exchange for cost-of-living-adjustments and an increase in the retirement benefit formula multiplier for all future years of service. The bill would address the KPERS unfunded liability by year 2035 and continue to guarantee adequate retirement benefits for KPERS members through the current defined-benefit system.

A provision of the bill, requested by the Governor, prohibits the other provisions of HB 2194 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.

As you recall, 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 KPERS Select Committee voted down the Study Commission plan, but the House has refused to take any action that they feel might trigger the provisions of HB 2194.

Unfortunately, legislators have chosen to ignore the fact that 2011 HB 2194 is still the most economical plan for the state.  It addresses the unfunded liability 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.
HB 2194 vs. Study Commission Plan (2012-2060)
Total Cost (HB 2194)  =               $22.1 Billion
Total Cost (Study Comm) =            $33 Billion
DIFFERENCE –                       $10.9 BILLION                             

HB 2194 vs. Cash Balance Plan (2012-2060)
Total Cost (HB 2194)  =                    $22.1 Billion
Total Cost (Cash Balance) =             $30.1 Billion
 DIFFERENCE –                                $8 BILLION

As we have suggested before, it appears the effort to move KPERS to a defined-contribution plan isn’t based on fiscal responsibility, but on an ideological desire to follow the failures of the private sector and shift all the risk from the state to retirees.

As the Legislature begins their annual wrap up session, it is not too late for them to do the right thing.  Call or write today and let them know that you expect fiscal responsibility and common sense to guide these important decisions.

CORPORATE FRONT GROUP AMERICAN LEGISLATIVE EXCHANGE COUNCIL BEHIND PENSION SCHEMES IN OTHER STATES…
IS INFLUENCE BEING FELT HERE IN KANSAS?

The American Legislative Exchange Council (ALEC), an organization funded by Wall Street insiders and corporate special interests, has come under fire lately for their controversial “model legislation” and extreme agenda being pushed in Legislatures across the nation.  Recently, numerous major corporations, including Pepsi, Kraft Foods, Coca-Cola, McDonald’s and the Bill and Melinda Gates Foundation, have announced they have had enough and are severing ties with the controversial organization.

Only recently has the public learned the extent of ALEC’s agenda.  For nominal membership fees, state lawmakers attend all-expense paid meetings at lavish locations where ALEC corporations hand state lawmakers “model legislation” that directly benefits their profit margins, usually at the expense of hard working middle class families.  State lawmakers then introduce bills, without disclosing they were written by ALEC, such as pension schemes, major tax loopholes, privatizing public education and state programs.

This month it was revealed the group held secret meetings with members of the Louisiana Legislature to help orchestrate and influence legislation to slash pensions for Louisiana state workers.  This prompted the Louisiana State Chairman of ALEC, Rep. Greg Cromer, to resign from the group.

Here in Kansas, according to the Lawrence Journal World (see link below), as many as 23 Kansas state lawmakers attended the last annual ALEC meeting, including several of the key players involved in the KPERS issue.   So, is ALEC influencing the debate on KPERS?  We may never know for sure, but here’s to hoping our lawmakers listen to KANSAS teachers, firefighters, cops and other state and local workers instead of Wall Street insiders.

Corporations drop memberships in ALEC, which has strong ties to Kansas Legislature

http://www2.ljworld.com/news/2012/apr/11/corporations-drop-memberships-alec-which-has-stron/

KANSAS LEGISLATURE TO TACKLE KPERS REFORM DURING ANNUAL VETO SESSION

After 70 plus days of the 2012 regular session, the Legislature has found reforming the state’s pension system a difficult task. The Governor began the session advocating for moving KPERS from a defined-benefit system to a defined-contribution (401k style) plan, as had been recommended by the KPERS Study Commission. However, after learning a defined-contribution plan would not address the system’s $8.3 Billion unfunded actuarial liability (UAL) as well as the dramatic costs associated with such a plan, lawmakers began looking for other alternatives.

One alternative both the House and Senate are considering is what is called a cash-balance plan. A cash-balance plan is a defined-benefit plan using a different formula for calculating benefits. Under a cash-balance plan, members are guaranteed to receive the dollar value of contributions made on their behalf plus a guaranteed annual interest crediting rate. Generally, the guaranteed interest rate will be set below the plan’s expected annual return, so that any lower performing years will be offset by higher performing years. At retirement, the “cash balance” for each employee is converted to a lifetime monthly annuity. Interest earnings over the guaranteed interest crediting rate can either be retained by KPERS to pay down the UAL or can be paid to plan participants as a dividend.

The cash-balance idea has some similarities to the current KPERS pension, but there are also differences. Both offer a guaranteed lifetime monthy benefit, both pool everyone’s investment funds together which are managed by professionals and neither offers self-directed investment options like a defined-contribution plan. The main difference is that under regular KPERS a set formula is used to determine monthly benefits including final average salary and years of service. With a cash-balance plan the benefit is determined based on the stated account balance that is converted into a lifetime monthly benefit. Since the benefit is based on the contributions made and interest earned, years of service and final salary do not have a direct impact on the benefit.

The Kansas House has passed Senate Bill 259 which outlines a cash-balance plan for new members coming into the system after January 2013. All current KPERS vested and non-vested members will remain in the regular system. However, there are some glaring flaws to the House plan. The interest crediting rate is set at a low percentage which prevents any opportunity to address the UAL or provide future dividends to members. The legislation also calls for a defined-contribution option for incoming members. By including this option, members will again be saddled with inadequate retirement benefits, while assuming ALL the risk for their retirement. The option also presents administrative hurdles that will significantly drive up the cost of the system and ultimately the UAL, making it impossible to consider future dividends or COLAs for members.

The Senate has yet to take action on their version of KPERS reform, but is also considering a cash-balance plan. The Senate KPERS Select Committee will begin working on their bill when the Legislature returns April 25, 2012. The committee will consider provisions that address the interest crediting rate and formulas that allow for adequate income replacement for longer term employees. The committee is also expected to consider a defined-contribution option.

So, after 70 plus days the Legislature is no nearer figuring out the KPERS puzzle than they were when the legislative session began. However, one thing is clear, many legislators have come to the realization that turning KPERS into a defined-contribution plan is too costly for the state and too detrimental to employees. Another thing is also clear, 2011 HB 2194 remains the most viable and least costly option on the table. While the Governor will no doubt continue his push for a defined-contribution plan, Keeping the Kansas Promise Coalition will continue our work when legislators return for their annual wrap-up session to ensure this risky endeavor is stopped.

DEFINED CONTRIBUTION OPTION IS COSTLY AND NO PROBLEM SOLVER

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.
Information taken from KPERS actuary; Cavanaugh, MacDonald Consulting, LLC.

DID YOU KNOW?

Did you know that members of Congress, which Governor Brownback was a member of for 16 years, take part in a defined-benefit retirement plan (once retired, they receive a specific monthly benefit based on years of service). Sounds familiar, doesn’t it?
Did you also know that members of Congresscontribute 1.3 percent of their salary into their retirement plan (KPERS members contribute 4-6%) and receive a pension equal to 1.5 percent of their highest salary for each year of service. Thus, a member serving 10 years would receive a pension equal to 15 percent of his/her salary.
Finally, did you know the amount of a Congressperson’s pension depends on the years of service and the average of the highest 3 years of his or her salary and the starting amount of a member’s retirement annuity may not exceed 80% of his or her final salary. The average percentage of income replacement for KPERS members is 62%, not even close to 80%.
So, despite the fact that as a member of Congress the Governor is eligible for a nice, comfortable defined-benefit retirement, he insists on moving KPERS members to a risky defined-contribution plan. What’s the old saying? What’s good for the goose…
Source: Congressional Research Service, Report for Congress, February 2007

PROTECTING KPERS AS WE KNOW IT STARTS WITH ALL OF US

As legislators return to their home districts over the next three weeks, it is more important than ever that they hear from their constituents on this important issue. To move to a defined-contribution plan, which costs $10.9 billion more than the current system, doesn’t provide an adequate benefit for KPERS members and does nothing to address the UAL, makes no sense! Below is a list of legislators that hold this decision in their hands, including their addresses, phone numbers and emal addresses. Call and write them today! Tell them KPERS members, and Kansas taxpayers, cannot afford this push toward a defined-contribution plan. Go to www.keepingthekansaspromise.com to learn more.

Jeff King
1212 N. Second Street
Independence, KS 67301
620-331-9888 jeffkingks@hotmail.com

Terrie Huntington
6264 Glenfield Drive
Fairway, KS 66205
913-677-3582 terriehuntington@gmail.com

Jeff Longbine
2801 Lakeridge Road
Emporia, KS 66801

Bob Marshall
999 215th Street
Fort Scott, KS 66701
620-223-3516 bobmarshall@cebridge.net

Ruth Teichman
434 East Old Highway 50
Stafford, KS 67578
620-234-5159 rteichman@hughes.net

Ty Masterson
P.O. Box 424
Andover, KS 67002
316-573-9987 senatormasterson@gmail.com

Terry Bruce
P.O. Box 726
Hutchinson, KS 67501
888-224-0291

Jay Emler
1457 Shawnee Road
Lindsborg, KS 67456
785-227-2887

Carolyn McGinn
PO Box A
Sedgwick, KS 67135
316-772-0147

Tim Owens
7804 West 100th Street
Overland Park, KS 66212
913-381-8711 towens10@att.net

Roger Reitz
1332 Sharingbrook
Manhattan, KS 66503
785-539-1710

Pete Brungardt
847 Fairdale Rd Apt. E
Salina, KS 67401
785-827-6188 petebrumgardt@bb.kscoxmail.com

Jean Schodorf
3039 Benjamin Court
Wichita, KS 67204
316-831-0229 jschodorf@aol.com

Chris Steineger
51 South 64th Street
Kansas City, KS 66111
913-287-7636

Dwayne Umbarger
1585 70th Road
Thayer, KS 66776
620-839-5458 senatorumbarger@yahoo.com

John Vratil
9534 Lee Boulevard
Leawood, KS 66206
913-341-7559

Stephen Morris
600 Trindle Street
Hugoton, KS 67951
620-544-2084

Mitch Holmes
211 Southeast 20th Ave
St. John, KS 67576
620-234-5834 rep@mitchholmes.com

John Grange
1115 Rim Rock Road
El Dorado, KS 67042
316-321-2087 johng@carlisleinc.net