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Kan. Senate rejects 401(k) but passes pension bill

TOPEKA, Kan. (AP) -- A proposal for a 401(k)-style retirement plan for new teachers and government workers failed on a tie vote Thursday in the Kansas Senate, but its members later approved other changes designed to bolster the long-term financial health of the state pension system.

Senators' 20-20 vote on the 401(k)-style plan puts them at odds with Republican Gov. Sam Brownback, who favors the idea, and the House, which approved legislation in March to start an optional 401(k)-style plan for new public employees.

After debating the merits of a 401(k)-style plan, the Senate approved a bill making a less dramatic move away from the state's existing retirement plans, which guarantee workers' benefits up front, based on their salaries and years of experience. The vote was 32-8, sending the bill to the House, with the final version of pensions legislation to be written by negotiators for the two chambers.

The Kansas Public Employees Retirement System projects an $8.3 billion gap between the total revenues it anticipates receiving and the total benefits it has promised to current and future retirees through 2033.

Last year, legislators enacted a law to boost the state's annual payments toward public pensions and require workers to either contribute more of their salaries or accept less generous benefits. But neither Brownback nor the GOP-controlled Legislature believes that the changes are enough to close the long-term KPERS funding shortfall.

"We have a job, to pay our debts from the past, and another job, to provide good retirements without incurring future debts," said Sen. Jeff King, an Independence Republican and the Senate's leading advocate of a new 401(k)-style plan.

King and other backers of a 401(k)-style plan argue that the state can't sustain its current plans because employees' benefits aren't tied to revenues and earnings by KPERS on its investments. The 401(k) plans common among private companies base benefits on investment earnings.

"It's an important part of the mix," Brownback told The Associated Press.

King offered his proposal -- requiring public employees hired after 2013 to join a 401(k)-style plan -- as an amendment to the pensions bill considered by the Senate.

Public employee groups and their allies loathe the idea of starting a 401(k)-style plan for new hires, arguing that it will result in less generous benefits. They've been aided by projections from the Legislature's staff showing that creating a new, 401(k)-style plan will come with additional startup and administrative costs.

The Senate's plan would put teachers and government workers hired after 2014 into a plan in which their benefits would be based on the cash balance accumulated from their annual contributions to their pensions and the state's partial match. The state would guarantee 6 percent interest annually.

Supporters believe the plan would limit the state's financial risk but guarantee gains for the workers. The House's legislation offers new hires a choice between a cash-balance plan and a 401(k)-style plan.

"People realize that the cash balance system is a good alternative," said Senate President Steve Morris, a Hugoton Republican who's championed the cash-balance proposal.

Senators didn't consider a proposal that House members added to their legislation, to use revenues generated from state-owned casinos in Dodge City and Kansas City and south of Wichita to help close the long-term KPERS funding gap.