Pension Flexibility: Kansas

Analysis of Kansas's policies

Kansas only offers a defined benefit pension plan to its teachers as their mandatory pension plan. This plan is not fully portable, does not vest until year five and does not provide any employer contribution for teachers who choose to withdraw their account balances when leaving the system. It also limits flexibility by restricting the ability to purchase years of service. 

Teachers in Kansas also participate in Social Security, so they must contribute to the state's defined benefit plan in addition to Social Security. Although retirement savings in addition to Social Security are good and necessary for most individuals, the state's policy results in mandated contributions to two inflexible plans, rather than permitting teachers options for their state-provided savings plans.

Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Nonvested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Kansas's vesting at five years of service limits the options of teachers who leave the system prior to this point.

Teachers in Kansas who choose to withdraw their contributions upon leaving only receive their own contributions plus interest. This means that those who withdraw their funds accrue no benefits beyond what they might have earned had they simply put their contributions in basic savings accounts. Further, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution.

Kansas limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Kansas's plan allows teachers to purchase an unlimited amount of previous teaching experience. However, the state's plan does not allow for the purchase of approved leaves of absence, which is a tremendous disadvantage to any teacher who needs to take a leave for paternity or maternity care, or for other personal reasons.

Kansas is commended for educating its teachers on the importance of supplemental savings plans; however, the state only guarantees a fully portable supplemental plan to state employees. Most school districts offer a 403(b) plan, but this option is not guaranteed by the state and there are no employer contributions.

Citation

Membership Guide, Kansas Public Employees Retirement System http://www.kpers.org/membershipguidekpers.pdf

Recommendations for Kansas

Offer teachers a pension plan that is fully portable, flexible and fair.
Kansas should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. However, as the sole option, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because teachers in Kansas participate in Social Security, they are required to contribute to two defined benefit-style plans.

Increase the portability of its defined benefit plan.
If Kansas maintains its defined benefit plan, it should allow teachers that leave the system to withdraw employer contributions. The state should also allow teachers to purchase time for parental leaves and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force.   

Offer a guaranteed fully portable supplemental retirement savings plan.
While Kansas at least encourages local districts to offer supplemental retirement savings plans, this option is not offered by the state and is not guaranteed to all teachers. If Kansas maintains its defined benefit plan, the state should at least offer teachers the option of a fully portable supplemental defined contribution savings plan, with employers matching a percentage of teachers' contributions.

State response to our analysis

Kansas recognized the factual accuracy of this analysis.