Brief(1)
House Sub. for S.B. 618 includes the House recommendations for the 1998 Kansas Public Employees Retirement System (KPERS) omnibus bill. The bill would grant automatic, post-retirement benefit increases linked to two-thirds the Consumer Price Index (CPI), and capped at no more than 2.0 percent, for any person after being retired for five years. The bill also would modify a number of KPERS statutes and would add other provisions as described in the following items.
Criminal Penalty. The provisions passed by the Senate in S.B. 618, which also are included in this substitute bill, would add a criminal penalty for making false statements pertaining to KPERS matters. The proposed change would delete references to "misdemeanor" and "$500," and would substitute language providing that such a person is "subject to the provisions of K.S.A. 21-3904" which is the criminal code section governing the presenting of a false claim. K.S.A. 21-3904 defines presenting a false claim as knowingly and with intent to defraud, presenting a false claim or demand to a public officer or body authorized to pay such claim, and provides a graduated level of severity depending upon the dollar amount of the fraud. Current law provides that a person who knowingly makes a false statement for the purpose of committing fraud shall be guilty of a misdemeanor and upon conviction subject to a fine of up to $500.
Restriction Rescinded. This provision would allow pre-July 1, 1995, members participating in a KPERS administered plan to retire under one system and to continue working under a second system while drawing retirement benefits from the original plan. This provision originally was included in S.B. 617 that was recommended for introduction by the Joint Committee on Pensions, Investments and Benefits. Current law passed in 1995 requires that if a person uses credit from one plan in order to retire under a different plan, then the person must retire from both plans in order to collect retirement benefits. Fiscal Note: KPERS staff estimates that 546 individuals could be affected by the issue of retiring under two systems, but that most active employees (80 percent) would not be involved in the fiscal consequences. The fiscal note indicates that 126 of those presently working under one plan (regular KPERS) and inactive under another plan (KP&F) would cost KPERS approximately $14 million if all individuals continued working until age 65. However, if all active members of this group retired as soon as eligible under regular KPERS, then the cost estimate is approximately $3.5 million. KPERS staff suggests that the cost most likely would be in the $10-$12 million range.
Service Credit Purchases. A provision was included that would authorize all service credit purchases that are currently 1.0 to be purchase optionally at 1.75 percent. This item also is included in S.B. 619. The Joint Committee on Pensions, Investments and Benefit studied this issue during the 1997 interim and recommended introduction of the bill which was assigned to the Senate for first consideration. The proposal would allow all KPERS service credit purchases currently based on a 1.0 percent multiplier to be acquired by the individual at the actuarial cost for either the present 1.0 percent multiplier, or an enhanced 1.75 percent multiplier.
A House floor amendment would allow active members who previously purchased service credit at 1.0 percent to buy an additional 0.75 percent as a lump sum purchase for the actuarial cost.
Technical Amendments. The following provisions requested by the KPERS Board of Trustees originally were included in S.B. 620, which was recommended for introduction by the Joint Committee on Pensions, Investments and Benefits to include these items. Fiscal Note: There is no administrative impact noted by KPERS.
Reduce Frequency of Audits. This provision would reduce frequency of KPERS performance audits. It also is included in 1997 S.B. 11 and 1998 H.B. 2612 that was reported favorable for passage by the Committee on March 20, 1998.
Purchase of Miliary Service Credit. A provision is included that would allow judges and justices to purchase credit for military service. Current law allows members under both KPERS and KP&F to buy military credits. This change would make such purchases uniform across plans. This provision is included in S.B. 512 and H.B. 2615.
Social Security Offset. This proposal would exempt any quadriplegic person from the current social security offset for the KPERS disability program. The proposal was introduced as H.B. 2873.
Assignment of Space. This amendment would eliminate assignment of KPERS' office location in the Capitol Complex by the Secretary of Administration. This provision was introduced as H.B. 2889. Fiscal Note: No impact is indicated by KPERS.
Definition of Public Safety Officers. A provision is included that would define a policeman and fireman. The provision would change the definition of a policeman to require that they be certified by the Kansas Law Enforcement Training Commission which initially requires 320 hours of accredited instruction at the Training Center and 40 hours of instruction annually thereafter. As firemen currently do not receive the same type of training, their definition is being changed to require that their principal duties are engagement in the fighting and extinguishment of fires. This amendment would not affect anyone who is already a KP&F member. The current definition of "policeman and fireman" in the KP&F statutes, includes a person who is ". . . in support thereof and who is specifically designated, appointed, commissioned or styled as such by the governing body or city manager of the participating employer . . . ." The proposal originally was introduced as H.B. 2890 by the Joint Committee on Pensions, Investments and Benefits. Fiscal Note: No actuarial impact or administrative costs are cited by KPERS.
A House floor amendment in the proposed new definition would add a proviso relative to law enforcement officers that would allow city or county corrections officers to be certified as eligible for KP&F if so designated by a city or county governmental unit or official. In addition, a study by the Joint Committee on Pensions, Investments and Benefits would be mandated in statute to review and make recommendations relating to inclusion of city and county correctional officers as eligible members of KP&F.
KPERS Employer Contributions. A provision would ensure that the employer contribution rate for all plans would be at least equal to or greater than employee contribution rates which are currently set by statute for all plans administered by KPERS. This measure was introduced as H.B. 2935.
Service Credit Purchases. This item would provide for purchases of additional benefits by Magistrate Judges. This provision would provide that District Magistrate Judges, who elected to become members of the Judges Retirement System in 1994 and who were judges prior to July 1, 1987, upon retirement would have their first ten years of service credit calculated at 5.0 percent of their final average salary. When these judges initially elected to purchase this service credit, the cost of purchases assumed the service would be credited at 3.5 percent. This measure was introduced as H.B. 2937 and also is included in 1997 S.B. 11.
Purchases of Forfeited Service. The provision would allow judges to purchase forfeited KPERS and KP&F service. The provision would allow purchases of service by payroll deductions to be made by the modified double or triple payroll deduction method. Under current law, this service can only be purchased in a single lump-sum payment. This measure was introduced as H.B. 2938.
Increase in Post-Retirement Earnings Limit. This item would increase the earnings limitation after retirement if a member returns to work for the employer from which the employee originally retired. Effective July 1, 1998, the earnings limitation for employment after retirement would be increased to $14,500 for calendar year 1998, $15,500 for 1999, $17,000 in 2000, $25,000 for 2001 and $30,000 in 2002 and thereafter. This would coincide with the changes in the social security earnings limitation for those respective years. Under current law, if a KPERS or KP&F retired member returns to employment with the same employer they were employed with prior to retirement, there is an earnings limitation of $11,280. Once the retired member receives compensation of this amount they must either (1) cease employment so there retirement benefit will continue or (2) continue employment and have their benefit suspended for the balance of the calendar year. There is no earnings limitation if the retired member returns to employment with some other participating employer. This measure was introduced as H.B. 2952.
Upgrading KP&F Service. This provision would allow a participating KP&F employer to reaffiliate for the purpose of bringing employees' past service into coverage under KP&F if the employer had initially affiliated for future service only. Under current law, when a new employer affiliates with KP&F, a decision must be made on whether coverage will include pervious service and future service, or will include only future service. The less expensive option is prospective service in order to avoid an actuarial liability that is incurred for pervious service before affiliation. This amendment would allow employers a second occasion to choose which method of coverage will be part of the KP&F affiliation, and if previous service is include, then the employer would pay the actuarial liability for other service credit not previously billed.
EFT Remittances. KPERS requested legislation to amend current law regarding the timing of employer and employee contribution remittances by electronic funds transfers (EFT) and improving the timely remittance by participating employers of contributions. The Senate Committee clarified that the amendment would require all participating employers to remit electronically regardless of present requirements that some units of government pay only by warrant. Fiscal Note: No administrative costs were noted by KPERS.
Benefits Paid to Minors. An amendment to current law would eliminate the need for a conservator to be appointed when a custodial parent is taking care of a child and the spouse is receiving a KPERS disability benefit. Under current law, the child also is eligible for a payment, but since minors are not recognized in the KPERS statutes, a conservator must be appointed to management the receipt of KPERS payments.
Affiliation of Employers. Under current law, employers who affiliated with KPERS are not required to pay the costs of pervious service, and this unfunded liability is absorbed by the System. Employers affiliating with KP&F are required under current law to pay for previous service, if that option is selected at the time of original affiliation. This change would make the payment by employers of previous service liability, if this option is selected, uniform across different plans administered by KPERS.
Third KP&F Election. Presently, there are 1,092 Tier I KP&F members, and 5,025 Tier II members. This proposal would allow Tier I members another election to decide if switching to Tier II which has more favorable early retirement provisions would be preferred to remaining in Tier I which has advantageous disability benefits. Tier I members would be required to pay the full actuarial cost of this change, if elected. The proposed change in law would include a proviso that KPERS would seek a letter ruling from the Internal Revenue Service to determine if a third election would adversely affect the tax exempt status of KPERS. If the ruling is favorable, then KPERS would schedule an election with a 90-day window for a third election.
Legislators Under Deferred Comp. Under current law, elected members of the Legislature who are eligible for KPERS must select coverage. This change in law would allow both present members and future members an option of choosing either to participate in KPERS or to participate in the deferred compensation plan in which the state pays 8.0 percent into a defined contribution plan for certain statutorily eligible state employees, such as cabinet secretaries and others who opt out of regular KPERS. This proposal would permit legislators to elect coverage under the state's 8.0 percent deferred compensation program authorized in K.S.A. 1997 Supp. 74-4911f and K.S.A. 75-5521 et seq. Under this program, the Legislature would contribute 8.0 percent of the legislator's total yearly compensation and expenses.
Legislative Agencies Under Deferred Comp. This proposal would permit staff members working in the different legislative offices that are not currently eligible to opt out of regular KPERS coverage to elect coverage under the state's 8.0 percent deferred compensation program authorized in K.S.A. 1997 Supp. 74-4911f and K.S.A. 75-5521 et seq. Under this program, the Legislature would contribute 8.0 percent instead of paying for KPERS. Any employees who elect deferred compensation would not be required to pay into the account.
Study of Defined Contribution Plans. A House floor amendment was included that would require the KPERS Board of Trustees to hire a qualified actuary to undertake a study of converting from a defined benefit to a defined contribution plan or plans for public employees. A report would be submitted to the 1999 Legislature on the findings of such a study.
KSRS COLA Increase. This provision would grant Kansas School Retirement System (KSRS) members with 25 or more years of service a monthly benefit increase of $100, effective July 1, 1998, for anyone who had retired under KSRS prior to January 1, 1971. This increase would impact 336 KSRS retirants (as of October 1, 1997) and the additional first year benefits would cost $403,200 if paid for 12 months to all 336 people. Because this is an older group, the KPERS actuary has indicated there would be a negligible actuarial cost since the mortality rate annually would reduce the size of this closed group. The provision was included in H. B. 2963 that originally was recommended for introduction by the Joint Committee on Pensions, Investments and Benefits.
Automatic COLA Provision. The House recommends an automatic cost-of-living adjustment (COLA) for all plans administered by KPERS, to be financed by both employers and employees, and to be funded over the remaining 35 years of the current KPERS plan period. The COLA would be based on calculating two-thirds of the CPI, and capped at a maximum annual increase in benefits of 2.0 percent.
A House floor amendment deleted Section 24 that would have introduced a new method for distributing and collecting the KPERS School employer contributions that was included in the bill as recommended by the House Committee. The proposed new method originally was part of the automatic COLA provisions.
Background
The House Appropriations Committee conducted hearings and adopted the following items on KPERS issues at a series of meetings during March of 1998. The Committee action followed a review and report by its Subcommittee on KPERS issues. That Subcommittee considered the 1997 interim report of the Joint Committee on Pensions, Investments and Benefits. Specifically, it conducted a study of various COLA options, including different automatic COLAs derived from the one offered by the Joint Committee in its recommendations to the 1998 Legislature.
The fiscal note for an automatic COLA was prepared by the KPERS actuary. The following tables were developed by KPERS working from actuarial calculations. The actuarial liability is estimated to be $873.0 million for a maximum 2.0 percent automatic COLA over a 35-year period. Total employer and employee contributions estimated to pay for the new COLA would be $8.487 billion over 35 years, with employer contributions of $5.367 billion and employee contributions of $3.120 billion required over the FY 2000 to FY 2033 period.
2% Automatic COLA to all current and future retirants commencing
five years after retirement regardless of age.
| Increase in
Actuarial Liability
|
Increase in
Contribution
Rate Year 1
|
Additional
First Year
Employer Contribution
|
Increase in
Contribution
Rate Year 5
|
Additional
Fifth Year
Employer Contribution
|
Total*
Additional
Employer Contributions Through 2033
| |||
| KPERS | ||||||||
| State | $ 181,000,000 | 0.86% | $ 6,540,000 | 1.96% | $ 17,440,000 | $ 896,930,000 | ||
| School | 445,000,000 | 0.86% | 18,040,000 | 1.96% | 48,100,000 | 2,473,850,000 | ||
| Local(1 | 111,000,000 | 1.92% | 15,830,000 | 2.18% | 21,030,000 | 1,402,270,000 | ||
| TIAA | 3,000,000 | 0.14% | 600,000 | 0.16% | 810,000 | 3,650,000 | ||
| Judges | ||||||||
| Judges | 6,000,000 | 2.13% | 390,000 | 3.42% | 730,000 | 26,960,000 | ||
| KP&F | ||||||||
| KP&F-State | 16,510,000 | 2.84% | 890,000 | 4.93% | 1,820,000 | 71,610,000 | ||
| KP&F-Local | 110,490,000
|
2.84% | 6,150,000
|
4.93% | 12,490,000
|
492,120,000
| ||
| Totals | $ 873,000,000
|
$ 48,450,000
|
$ 102,420,000
|
$ 5,367,390,000
| ||||
| 1) Local KPERS first year will be calendar year 1999; fifth year will be 2003. The remaining groups first year will begin in calendar year 1998. | ||||||||
TABLE 1-2
AUTOMATIC COLA ESTIMATES--EMPLOYEE
| Increase in
Actuarial Liability
|
Increase in
Contribution
Rate Year 1
|
Additional
First Year
Employee Contribution
|
Increase in
Contribution
Rate Year 5
|
Additional
Fifth Year
Employee Contribution
|
Total
Additional
Employee Contributions Through 2033
| ||
| KPERS | |||||||
| State | $ 181,000,000 | 0.25% | $ 1,900,000 | 1.00% | $ 8,900,000 | $ 578,540,000 | |
| School | 445,000,000 | 0.25% | 5,250,000 | 1.00% | 24,540,000 | 1,595,770,000 | |
| Local | 111,000,000 | 0.25% | 2,060,000 | 1.00% | 9,650,000 | 594,640,000 | |
| TIAA | 3,000,000 | 0.00% | 0 | 0.00% | 0 | 0 | |
| Judges | |||||||
| Judges | 6,000,000 | 0.38% | 70,000 | 1.50% | 320,000 | 20,760,000 | |
| KP&F | |||||||
| KP&F-State | 16,510,000 | 0.44% | 140,000 | 1.75% | 650,000 | 41,940,000 | |
| KP&F-Local | 152,220,000
|
0.44%
|
950,000
|
1.75%
|
4,430,000
|
288,060,000
| |
| Totals | $ 873,000,000
|
$ 10,370,000
|
$ 48,490,000
|
$ 3,119,710,000
| |||
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.