Kansas Senate Bill 282 would improve retirement options for state employees

A version of this public comment was submitted to the Kansas Senate Committee on Financial Institutions and Insurance.

Senate Bill 282 establishes the Kansas Retirement Investment and Savings Plan, which would offer a defined contribution (DC) retirement benefit for all state employees—excluding police, firefighters, judges, and correctional officers—hired on or after July 1, 2027. Since it would become the primary vehicle for providing a secure retirement for most public workers, it is important to assess the adequacy of the proposed DC plan and its ability to meet the needs of retirees and employers.  

While decades of experience with public sector DC plans have demonstrated that they can be an effective means to providing adequate retirement income for public workers, not all governmental—nor even private sector—DC plans are the same. Not all DC plans fulfill the definition of an effective plan designed to ensure a secure retirement, and many could be enhanced by integrating best practices.  

Upon review, the Pension Integrity Project found that the proposed DC retirement plan in SB 282 reflects a high-quality public sector retirement plan design that incorporates best practices from national experience. 

First and foremost, the plan proposed in this bill does not reduce funding for existing legacy retirement plans and requires that previously promised pension benefits remain adequately funded. This will facilitate a smooth transition from past retirement offerings to the proposed future benefits. Due to specific provisions in SB 282, current employees and retirees will continue to have their benefits funded at the same levels as before, and the establishment of this new plan will not impact the state’s commitment to benefits already promised to public workers. 

On the subject of cost and risk, establishing a DC plan as the primary retirement vehicle for new hires would significantly reduce the growth of Kansas’ pension liabilities. This would go a long way toward eventually achieving full funding of promised benefits. Slowing the growth of pension-related liabilities reduces the risk of unexpected costs to government budgets and taxpayers, which lawmakers should consider when evaluating this proposal. 

SB 282, importantly, avoids the shortcomings of many retirement plans by providing a formal statement of legislative intent and plan objective for the Retirement Investment and Savings Plan that is consistent with retirement best practices. This language will help members understand the goals of the plan and will serve as a foundation for future decisions by policymakers and plan administrators. 

The proposed plan also satisfies the critical best practice of providing adequate contributions. Retirement experts agree that a total contribution rate of between 10% and 15% is necessary over a career to adequately fund retirement (when combined with Social Security and personal savings). The contribution design of 10% (6% from employees and 4% from the employer) with potential additional contributions and matching through the supplemental deferred compensation retirement plans offered by employers will meet these best practice contribution standards. 

One common concern about DC plans is ensuring protection against longevity risk, which is the risk that beneficiaries outlive their retirement savings. SB 282 directly addresses this risk by requiring the offering of robust lifetime income options for purchase. Providing a variety of in-plan life insurance annuities as distribution options allows retirees to mitigate the risk of outliving their retirement savings. 

The proposed Retirement Investment and Savings Plan is also well-suited for a public sector workforce that is increasingly mobile. It will complement the needs of government employers who are now more reliant on shorter-tenured, non-full-career workers. As employees change jobs more frequently and remain in positions for shorter periods, the modern workforce values more individualized and portable retirement benefits that align better with private sector retirement plan offerings. Since the plan proposed in SB 282 is inherently a portable retirement benefit, it would serve as an appropriate default retirement plan that matches the overall dynamics of your public workforce.  

On the subject of making this a valuable retirement plan for the modern workforce, we have identified one possible area of improvement for the proposed Retirement Investment and Savings Plan. As currently structured, SB 282 would require five (5) years of employment before members will be able to vest into the contributions made by employers. Our experience indicates that this is a vesting period longer than most DC plans, and it may lead to many public employees missing out on a critical part of their compensation. 

All that said, the Pension Integrity Project finds the plan established in SB 282 to meet the primary objectives of retirement best practices, meaning it would serve its members well while meeting the needs of the state and its employers. 

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