State Sen. Jeff King started a talk on the reform of the state employee pension system by giving thanks for the state of Illinois.
“If it were not for Illinois,” he said, “the Kansas Public Employees Retirement System (KPERS) would be the most underfunded in the country.”
Sen. King went on to tell Iola Rotarians Thursday that the reforms adopted by the 2002 Session of the Legislature will bring the current $8.3 billion long-term deficit in the program to zero over 20 or more years while providing assured pensions for retired teachers and other public employees.
Sen. King was elected to the Senate in 2010 after serving two terms in the House. He identified the grossly underfunded pension system as one of the major problems facing lawmakers and volunteered to serve on a study committee to propose a solution. The study commission he headed proposed a complex set of reforms which became law. Its provisions will be phased in over the next five years.
The new law provides for:
• Increased employer (state and local governmental units) contributions.
• Increases in curent member contributions or decreased benefits, as workers choose.
• Creation of a new tier 3 cash balance retirment plan for new hires, beginning in 2015.
• Contributions into the KPERS fund money from state gaming revenues to reduce the unfunded liability.
• Contributions into the fund from revenues received from the sale of state real estate.
The increases in employer contributions — which are now at 4 percent of wages — would begin in the year 2014 and increase each year until they reach the actuarily required rate. Estimates are that these increases will mean more than $500 million over the next 10 years, bringing the total income from this source to about $10 billion over the next 10 years.
Increases in worker contributions for those hired before 2009 would be from 4 percent of wages to 5 percent in 2014 and 6 percent in 2015 and thereafter — except that these workers would have a choice between leaving their contribution rate at 4 percent and accepting a 20 percent lower pension upon retirement.
Beginning in 2015, new public employees will have a hybrid retirement plan which combines the benefits of a defined benefit plan (which guarantees a specific pension rate) and a defined contribution plan which will guarantee a pension based on a 5.25 percent return on the pension fund but pays a higher pension if the fund’s return is higher. The effect will be to give retirees the benefit of higher earnings but to only guarantee a pension based on a 5.25 percent return.
The current KPERS pension payments are based on an 8.5 percent return, which is greater than most current investments now pay. The high earnings assumption explains about 40 percent of the reason why the current retirement fund is under-funded by $8.3 billion, Sen. King said. Another 40 percent of the underfunding is explained by fact that the Legislature has never paid into the pension fund enough to meet the obligations made under the program to retired public employees.
“It has been underfunded from day one,” he said.
DUE TO redistricting by three federal judges this year Allen County is no longer represented by Sen. King, who is therefore running in a new district comprised of Labette, Montgomery and Neosho Counties. He and Duayne Umbarger of Thayer will face each other in August for the Republican nomination. Sen. King said he was very disappointed to have Allen County removed from his district. If he wins the nomination and is re-elected, he said he would continue to do what he could to work for the interests of Iola and Allen County.
Sen. King was introduced by Emerson Lynn, program chairman.
