TOPEKA, Kan. (AP) — Two top aides to Republican Gov. Sam Brownback proposed Friday that Kansas study privatizing the pension system for teachers and government workers.
Budget Director Shawn Sullivan and Secretary of Administration Jim Clark told a joint legislative committee on pensions that “reform options” for bolstering the public pension system’s long-term health should be examined. Their list included converting pension benefits into annuities managed by a private insurer.
“It’s an idea worth pursuing,” Sullivan said after presenting the proposal to lawmakers.
The committee urged Brownback’s aides to gather more information about private companies’ experiences with such moves and present it once legislators open their next annual session Jan. 12. But members of both parties were skeptical.
Clark said with converting pension obligations into annuities, a private company assumes the long-term financial risks for a fee, while the state can provide competitive benefits at a lower cost.
Rep. Steve Johnson, an Assaria Republican, said the idea has merit, but, “I am not optimistic that there would be a buyer of that liability at a lower cost.”
And Rebecca Proctor, interim executive director of the largest union for Kansas government employees, said private companies’ need for profits would compete with the pension system’s drive “to generate benefits for employees.”
“Any time you put a profit motive in a state service, it’s a problem,” she said.
Kansas last year turned over administration of its Medicaid program for the poor and disabled to three private insurance companies. Assessments have been mixed, though Brownback argues the state has controlled costs while providing better health coverage.
The governor said last week that he is working on proposals for ensuring the long-term financial stability of the Kansas Public Employees Retirement System. His comments followed bipartisan criticism of his diversion of nearly $41 million in state funds from KPERS to general government programs to help close a projected $279 million shortfall in the current budget.
The pension system says benefits for retirees are only 60 percent funded through 2033, but a 2012 law mandated higher contributions to KPERS by both the state and workers so that the retirement system’s obligations become fully funded by then. Critics contend the diversion of state funds represents backtracking, but Sullivan told the committee that the governor plans to do it only once even though the state also faces a shortfall in its budget for the fiscal year beginning in July.
Sullivan and Clark also proposed that the state study issuing up to $1.5 billion in bonds and putting the funds into KPERS to immediately boost the level of funding for its long-term obligations.
Also, they want additional study of proposals to move toward a 401(k)-style plan for new workers, an idea GOP conservatives have pushed in the past. The 2012 law included a plan for new employees that moved away from traditional benefits based on a worker’s salary and years of service but wasn’t a true 401(k)-style plan.
Critics of traditional public retirement plans argue that the state’s liability is open-ended, with taxpayers on the hook. Retiree and public employee groups contend changes are designed to shift the financial risk to workers.