3903 – Brief
SUPPLEMENTAL NOTE ON
2021 SILVER-HAIRED LEGISLATURE BILL NO. 3903
SHL Resolution No. 3903 urges the Legislature and the Governor of the State of Kansas to fully fund all Kansas Public Employees Retirement System (KPERS) obligations, stop delaying KPERS employer contributions payments, and fund a cost-of-living adjustment (COLA) for retirement members participating in KPERS.
Among the findings about KPERS obligations and employer contributions stated in the resolution are these:
● Active KPERS members have always been required to make their full contributions each month and further, active Tier 1 members were required by law to increase their contributions from 4.0 to 6.0 percent beginning January 1, 2015;
● KPERS members expected their employer to likewise contribute diligently each month, and trusted the elected officials of the State of Kansas to uphold their end of the law by funding KPERS as prescribed by state statute;
● State of Kansas employees recently went eight years without a pay raise;
● The Legislature approved a $1.0 billion pension obligation bond issue in 2015, and in 2021, approved a $500.0 million pension obligation bond with the proceeds of each deposited into the KPERS Trust Fund;
● The State of Kansas has shorted the system many times and has delayed KPERS employer contribution payments to build a more positive State General Fund (SGF) balance; and
● Actions by the Legislature to increase employer contributions to the full actuarially required contribution rate are greatly appreciated, and have helped increase the KPERS funded ratio from 56.0 percent in 2012 to 72.5 percent at the end of 2020.
The resolution also makes the following findings regarding COLA payments for KPERS retirees by defining a COLA and stating:
● For Kansas retirees in the KPERS retirement system, COLAs help ensure that the retiree’s purchasing power remains the same no matter how long he or she may live and how quickly prices might rise; and
● A COLA is even more important to retirees who do not receive Social Security because, without their pension’s COLA, they may have no other retirement income that increases with inflation.
The resolution also notes it has been 23 years since the last COLA for KPERS retirees.
Historic KPERS Employee Contribution Rates
KPERS was created by the 1961 Legislature, with an effective date of January 1, 1962. Membership in the original KPERS retirement plan (now referred to as KPERS Tier 1) was offered to state and local public employees qualified under the new law and whose participating employers chose to affiliate with KPERS. Another KPERS tier was created in 2007 for state, school, and local public employees becoming members on and after July 1, 2009. KPERS Tier 2 has many characteristics of the original plan, but with certain modifications to ensure that employees and employers share in the total cost of providing benefits. A Cash Balance plan was established as a new Tier 3 within the existing KPERS defined benefit plans. Tier 3 was implemented on January 1, 2015, for new employees.
KPERS Tiers 1, 2, and 3 are participatory plans in which both the employee and employer make contributions. In 1961, employee contributions were statutorily set at 4.0 percent for the first $10,000 of total annual compensation. The $10,000 cap was eliminated by 1967 legislation. Tier 2 employee contribution rates were set at 6.0 percent by statute beginning July 1, 2009. Tier 1 employee contribution rates increased from 4.0 to 5.0 percent in 2014, and to 6.0
percent on January 1, 2015. Tier 3 employee contribution rates are set at 6.0 percent.
Historic KPERS Employer Contribution Amounts
The 1993 Legislature created the statutory budget caps limiting the amount of annual increase for employer contributions and provided a 25.0 percent increase in retirement benefits for those who retired on and after July 1, 1993, and an average 15.0 percent increase in retirement benefits for those who retired before July 1, 1993. In 2012, legislation also modified the rate of increase in the annual caps on participating employer contributions. The then-current 0.6 percent cap increased to 0.9 percent in FY 2014, 1.0 percent in FY 2015, 1.1 percent in FY 2016, and 1.2 percent in subsequent fiscal years until the unfunded actuarial liability School group reaches an 80.0 percent funded ratio.
The 2015 Legislature reduced the statutory rate for participating employer contributions for FY 2016 and FY 2017 to 10.91 percent and 10.81 percent, respectively. In FY 2018 and subsequent fiscal years, the contribution rate may increase by no more than 1.2 percent above the previous year’s contribution rate.
The 2016 Legislature (House Sub. for SB 161) provided the Governor with enhanced allotment authority and specifically allowed for the reduction of FY 2016 employer contributions to KPERS. In total, $97.4 million in previously approved FY 2016 employer contributions to the State-School group were delayed. Pursuant to 2016 House Sub. for SB 249, the entirety of that amount plus 8.0 percent interest compounded annually was required to be paid to KPERS by
the conclusion of FY 2018.
The 2017 Legislature (Senate Sub. for Sub. for HB 2052) reduced FY 2017 employer contributions by approximately $64.1 million below previously approved amounts. Repayments of the FY 2017 reduced contributions were to be restored to the KPERS Trust Fund across 20 years starting in FY 2018 at $6.4 million per year. Repayment of the FY 2016 delayed contributions, to be made in FY 2018, was eliminated. Pursuant to 2017 Senate Sub. for HB 2002, FY 2018 employer contribution rates were funded at statutory amounts, while FY 2019 employer contributions were reduced by approximately $194.0 million. This delayed amount will be repaid across 20 years starting in FY 2020 at approximately $19.4 million annually.
The 2018 Legislature (House Sub. for SB 109) transferred $82.0 million from the SGF to the KPERS Trust Fund for FY 2019. The transfer will reduce the unfunded liability. Additionally, a transfer from the SGF to the KPERS Trust Fund was approved, up to $56.0 million of actual receipts that exceed projected receipts, in FY 2018 and for FY 2019.
The 2019 Legislature (House Sub. for SB 25) converted the contingent transfer of $56.0 million from the SGF to the KPERS Trust Fund to a compulsory transfer and reduced the transfer by $5.0 million to $51.0 million for FY 2020. The Legislature, in SB 9, transferred $115.0 million from the SGF to the KPERS Trust Fund. The transfer was for repayment of reduced KPERS-School group employer contributions from participating employers of $97.4 million with interest from FY 2016. (Note: The Legislature has not eliminated statutory layering payments from FY 2017 and FY 2019 delayed employer contributions despite having made those advanced payments.)
The 2021 Legislature (HB 2405) authorized the issuance of $500.0 million in pension obligation bonds to be applied to the unfunded actuarial liability of KPERS. The additional funding is anticipated to decrease the employer contribution rate from 14.69 percent to 13.36 percent in FY 2024.
The Kansas Legislature has considered COLAs for KPERS beneficiaries several times, most recently during the 2017-2018 and 2019-2020 legislative bienniums. However, 1998 was the last time KPERS beneficiaries received a COLA. At that time, retiree benefits were increased by 3.0 percent. Since 1998, three one-time benefit payments have been made to members who retired before July 1, 1998.
In 2017, SB 227 and HB 2323 were introduced to provide a one-time cost-of-living increase for members who retired before July 1, 2012. The proposed COLA would have been 1.0 percent for members who retired before July 1, 2012; 2.0 percent for members who retired before July 1, 2007; and 3.0 percent for members who retired before July 1, 2002. The
legislation further provided that any increase in the monthly benefit from the COLA could not exceed $150. A cost study completed by the KPERS consulting actuary indicated enactment of either bill would increase the unfunded actuarial liability for all retiree groups by $164.0 million. No action was taken on either bill during the 2017-2018 biennium.
In 2019, SB 74 and HB 2100 were introduced to provide for a one-time cost-of-living increase for certain members who have been retired for at least five years. The COLA would have been structured as follows:
● 1.0 percent increase for retirees who retired on or before July 1, 2014;
● 2.0 percent increase for retirees who retired on or before July 1, 2009; and
● 3.0 percent increase for retirees who retired on or before July 1, 2004.
The bill further specified any such monthly benefit from the COLA could not exceed $150. According to information presented by KPERS, it is estimated that HB 2100 would have increased the total unfunded actuarial liability for all groups (including KPERS Local and Kansas Police and Firemen’s Local groups) by $185.7 million.
HB 2100 was referred to the House Committee on Financial Institutions and Pensions, which held a hearing on HB 2100 in February 2019. SB 74 was referred to the Senate Committee on Ways and Means. No action was taken on either bill during the 2019-2020 biennium.