Bills Signed into Law

Transcription

1 House Substitute for Senate Bill 21 (Law) House Substitute for Senate Bill 21 is the Omnibus working after retirement bill, which reflects the final working after retirement policies that originated in other bills. Bills Signed into Law The changes contained in House Substitute for SB 21 include: New Basic Rule Effective 1/1/2018 For retirements on and after 1/1/ 2018, there is a 180-day waiting period before returning to work if retiring before age 62 and a 60-day wait if age 62 or older. There is no earnings limit for those retirees. No prearrangement to return to work between employer and retiree is allowed. The employer does not pay any employer contributions on the pay of retirees in non-covered positions. For covered positions, the employer pays the statutory contribution rate on the first $25,000 of pay and 30% thereafter. o If a retiree is employed by multiple participating employers or in more than one position, contributions are paid on all compensation from that employment for the calendar year. There is no sunset date on the new basic rule. Retirees Who Retired Before 1/1/2018 Effective 1/1/2018 Effective 1/1/ 2018, the new basic working after retirement rule also applies to all retirees in state, local, and licensed/non-licensed school positions who retired before 1/1/2018 (except for a limited number of exemptions listed below). No prearrangement to return to work between employer and retiree is allowed. The retirees covered by this rule include o Retirees in state, local, and non-licensed school positions who returned to work on or after 5/1/15 or who have lost grandfathered status since that date due to a break in service or a change of jobs or employer; o Retirees in licensed school positions who retired after 5/1/2015 or took early retirement after March 2009; o Retirees in state, local, and non-licensed school positions who are currently covered by a grandfathering provision (who returned to work before 5/1/2015 and have not lost grandfathered status); o Retirees in licensed school professional positions who are currently covered by a grandfathering provision (who retired before 5/1/2015 or took early retirement before March 2009); o Great-grandfathered retirees who returned to work for either the same or different employer before 7/1/2006. Exemption Changes Effective 7/1/2017 Restates exemption for substitute teachers (i.e., clarifies the exemption covers those retirees working as a substitute teacher without a contract) All retirees who retired before 1/1/2018 and return to work in a licensed school professional position are covered by the current provisions for grandfathered licensed school professionals o There is not an earnings limit for these retirees o The employer pays the actuarial rate plus 8% on their compensation. There are no contributions on the earnings of substitute teachers working without a contract.

2 Bills Signed into Law KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM House Substitute for Senate Bill 21 (Law) o Licensed school positions include classroom teachers, administrators, school psychologists, speech pathologists, and similar school positions requiring a license. o Includes those who retired at normal retirement and those taking early retirement before 1/1/2018. o Includes retirees who were not previously grandfathered because they took normal retirement after 5/1/2015 or early retirement after March Expands exemption from working after retirement rules for local elected officials to include all state-wide elected officials and legislators. o o Exempts officials from both earnings limit and employer contributions Establishes a 30-day waiting period following retirement before taking office, except where the official is appointed to a vacant office, in which case there is not a waiting period requirement. There are no changes on 7/1/2017 to the rules for grandfathered retirees working in state, local, or non-licensed school positions or to hardship, special education, and hard-to-fill exemptions. Exemption Changes Effective 1/1/2018 Effectively eliminates licensed school professional, hardship, hard-to-fill, and special education exemptions, as they all fall under the new basic. Independent Contractors/Third Party Clarification Effective 7/1/2017 Includes provisions from HB 2268 specifically applying basic working after retirement rules to KPERS retirees working as independent contractors (for members retiring before and after 1/1/2018) Includes criteria from HB 2268 for excluding from working after retirement rules certain independent contractors and retirees working for third parties contracting with a KPERS employer, effective 7/1/17 o Contractual relationship not created to allow retiree to continue employment in a position similar to the one the retiree held before retiring o The retiree s activities are not normally performed exclusively by employees of the KPERS employer o The retiree meets the statutory criteria for an independent contractor or, if employed by a third-party contractor, the activities are on a limited-term basis, and the third party is not itself a KPERS employer House Committee on Financial Institutions and Pensions (Substitute Bill) Law Administrative Costs: House Substitute for SB 21 will require changes to KPERS information technology system. However, the administrative costs will be funded within existing resources. Actuarial Costs: Background. The ability to return to work for a KPERS-affiliated employer after retirement can have multiple legal and actuarial ramifications. For this reason, there have long been

3 limitations on working after retirement, including either a limitation on earnings if returning to work for the same employer from which the member retired or an employer contribution if returning to work for a different employer. Beginning July 1, 2009, licensed school professionals, including teachers, administrators, and such professional staff as psychologists and speech therapists, were provided with an exemption from the earnings limitation whether working for the same or different employer. Employers were required to pay contributions equal to the actuarial rate plus 8%. Bills Signed into Law Major revisions to working after retirement laws were enacted during the 2015 and 2016 legislative sessions. The rules included application of a $25,000 earnings limit whether a retiree is working for the same or a different employer, and creation of several exemptions to the earnings limit, including a hardship exemption available to all KPERS employers and two exemptions unique to schools i.e., exemptions for special education teachers and hard-to-fill positions, as designated by the Kansas Board of Education. These exemptions are time limited (maximum of four years individually and in combination) and subject to a 30% contribution rate, which is to be the subject of a periodic actuarial evaluation. The existing exemption for licensed school professionals, was extended through July 1, 2020, for those KPERS members who retired before May 1, However for the six months from 7/1/2017 to 1/1/2018, H Sub for SB 21 effectively reinstated the licensed school professional exemption as it was in effect prior to July 1, Actuarial Implications. The policy changes contained in H Sub for SB 21 have the potential to affect retirement decisions of KPERS members. If a member is able to retire and receive both a pension and a salary from a KPERS employer, they may decide that it is in their best financial interest to retire at a younger age than they may have otherwise retired. Generally, working after retirement policies that could incent members to retire at a younger age have an actuarial cost to the System. For example, the ability to work without an earnings limit as a licensed school professional with only a 60-day waiting period could create an incentive a member to retire but continue working in their same or a similar position. That scenario would create an actuarial cost to the plan. The policy in H Sub for SB 21 contains provisions that appear to be a disincentive for some members to retire earlier (i.e. a longer waiting period for younger retirees), but also provisions that would be expected to incent earlier retirement for other retirees (i.e. no earnings limit and no extension of the waiting period for members age 62 or older). In addition, under H sub for SB 21, employer contributions are only required on covered positions, which could be an incentive for employers to hire retirees into positions that could be filled with active members. However, because the cost is behaviorally based, KPERS is not able to anticipate the net actuarial impact of H Sub for SB 21. H Sub for SB 21 eliminated a number of protections to KPERS actuarial funding that were enacted in the 2015 and 2016 working after retirement rules. The new policy contains no actuarial review of the contribution rate, no limitation on a retiree s length of employer after retirement, no requirement for employers to attempt to fill positions with active members, and fewer restrictions on members who took early retirement all provisions

4 House Substitute for Senate Bill 21 (Law) that existed under the policies passed in 2015 and In addition, changes were made to the employer contribution structure that is lower for some retirees and higher for others. The net effect of the new employer contribution structure may become clearer in the future. Bills Signed into Law Maintaining the requirement for employers and retirees to sign a document that there has been no prearranged agreement to return to work could be something of a deterrent for members who are thinking of retiring with the intention of returning to work as it may reduce the certainty of re-employment for those members and employees honoring its intent. House Substitute for SB 21 contains the final working after retirement policy. Other bills that contained working after retirement policy were HB 2005, 2268, SB 138, and SB 205.

5 Bills Signed into Law Senate Bill 205 (Law) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM SB 205, as amended by the House Committee on Financial Institutions and Pensions, includes the provision of: SB 205 as amended by the Senate Committee on Financial Institutions and Insurance, which deals with the crediting of service for paid leave for KP&F members and police and firefighters who are KPERS members; HB 2111, as amended by the House Committee on Financial Institutions and Pensions, which deals with spousal benefits under KP&F service-connected death; and HB 2005, which exempts retirees working in Regents retirement system positions from working after retirement rules. In addition, a technical amendment to KPERS statutes to change a reference from 8% investment return assumption to the actuarial rate of return established by the Board of Trustees (currently 7.75%) was amended into SB 205. (It was originally included in amendments to HB 2268.) Senate Committee on Ways and Means Law The costs for the individual bills in SB 205, as amended by House Committee include: SB 205, as amended by Senate Committee (Expanded definition of service credit): In general, both KPERS and KP&F members currently receive service credit for periods of time spent on vacation and sick leave, and for up to 10 days on administrative leave, so long as the employer is reporting at least 50% of the member s normal pay. Members earn one quarter of service for every quarter of service in which he or she works. Moreover, members who qualify for disability benefits are automatically credited with service back to the date of the disability. Therefore, in KPERS experience, there are limited circumstances in which a member s service credit might be adversely affected due to administrative leave. The bill is not specific about the payment of contributions while a member is on approved leave, which is essential if service credit is to be awarded for that period of time. However, as long as a member and their employer continue to make contributions on the full amount of the employee s compensation the cost to the System is expected to be minimal, even though an exact effect cannot be calculated. The new definition of service credit would allow employers in some situations to use KPERS as a personnel management tool, which would be a foundational shift in policy from current law. The amendments in SB 205 narrow the scope of the provision somewhat by requiring the member to return to work in the same or a similar position, under most circumstances, in order for the time spent on leave to be credited. As amended, the scope is also narrowed by limiting its application to KP&F members and KPERS members who are employed as police and firefighters, rather than all KPERS and KP&F members. HB 2111, as amended by House Committee (service connected death benefits): KPERS consulting actuary estimated the cost of the proposed change based on 2016 HB 2709 and the 12/31/2014 actuarial valuation. Using the actual service-connected death experience of the System, the actuary estimated that the changes proposed in HB 2111

6 Bills Signed into Law Senate Bill 205 (Law) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM would increase the KP&F unfunded actuarial liability by $605,000 resulting in a 0.01% increase in the unfunded actuarial liability portion of the employer contribution rate. In addition, the normal cost of benefits was estimated to increase by 0.01%, for a total increase in the employer contribution rate of 0.02%. This increase in the employer contribution rate would result in additional revenue to the Trust Fund. However, the impact of 0.02% on just the KP&F employer contribution would be a very small change in revenues of less than $50,000. The actuary estimates that the costs of implementing HB 2111 will be similar to the estimate that was completed based on the 12/31/2014 valuation. HB 2005, as introduced: Allowing KPERS members to retire and return to work for a KPERS-affiliated employer can result in costs to the System. However, the costs are dependent on changes in member behavior, which cannot be measured in advance of the proposed change in policy. Based on data provided by the Board of Regents in September 2016, the scope of the exemption in 2017 HB 2005 is expected to be relatively limited. As of August 29, 2016, Board of Regents reported that a total of 140 KPERS retirees were working in positions covered by the Regents Mandatory Retirement Plan, of which 114 had grandfathered working after retirement status at that time. The policy in HB 2005 would make it easier for KPERS members to retire when first eligible for normal return and return to work, which increases the actuarial cost. However, it is not possible to calculate what that cost will be. It should be noted that KP&F retirees and Judges retirees are not subject to working after retirement rules if they return to work in a KPERS-covered position. However, given the nature of positions covered by the KP&F and Judges plans, those retirees are unlikely to return to work in a KPERS-covered position that is the same or comparable to the position they held while active KP&F or Judges members. The exemption in HB 2005 for KPERS retirees employed in Regents retirement plan-covered positions is similar in nature to KP&F or Judges retirees serving in KPERS-covered positions, so long as the KPERS retirees are hired into Regents retirement plan-covered positions that are different from their KPERS-covered employment prior to retirement. If Regents institutions have the ability to convert a KPERS-covered position to a position covered by the Regents plan and fill it with a KPERS retiree, the exemption in HB 2005 would provide greater flexibility and incentive to do so.

7 House Bill 2111 (As Amended by Senate Committee) HB 2111 would change the spousal benefits for KP&F members who die from serviceconnected causes. Bills in Conference Committee Currently, if a member dies due to service-connected causes, the surviving spouse is entitled to 50% of the final average salary at the time of the member s death. In addition, any surviving dependent children are entitled to 10% of the member s final average salary for each child. However, the total benefit cannot exceed 75% of the final average salary. Under HB 2111, the surviving spouse benefit would be the greater of 50% of the member s final average salary or the amount that the member s retirement benefit would have been had the member elected to retire on the 1st of the month following the date of death and elected the joint and 100% survivor benefit option. There is no change to the benefits of the surviving children. HB 2111 increases the total cap on benefits to 90% of final average salary. The House Committee amended the bill to make the provisions retroactive to July 1, The Senate Committee amended the bill to make it effective upon publication in the Kansas Register. House Committee on Financial Institutions and Pensions Tax Conference Committee Administrative Costs: HB 2111 would require some upgrades to existing information technology systems. However, the upgrades would not require significant changes and can be funded within existing resources. Actuarial Costs: KPERS consulting actuary estimated the cost of the proposed change based on 2016 HB 2709 and the 12/31/2014 actuarial valuation. Using the actual service-connected death experience of the System, the actuary estimated that the changes proposed in HB 2111 would increase the KP&F unfunded actuarial liability by $605,000 resulting in a 0.01% increase in the unfunded actuarial liability portion of the employer contribution rate. In addition, the normal cost of benefits was estimated to increase by 0.01%, for a total increase in the employer contribution rate of 0.02%. This increase in the employer contribution rate would result in additional revenue to the Trust Fund. However, the impact of 0.02% on just the KP&F employer contribution would be a very small change in revenues of less than $50,000. The actuary estimates that the costs of implementing HB 2111 will be similar to the estimate that was completed based on the 12/31/2014 valuation. Senate Bill 137, as introduced, was identical to House Bill 2111, as introduced. The provisions of HB 2111 were amended into SB 205, which has become law. is the law became effective on July 1, 2017, but applies to service-connected deaths on and after July 1, HB 2111 was placed into the Tax Conference Committee during the

8 Senate Bill 137 (As Amended by Senate Committee) SB 137 would change the spousal benefits for KP&F members who die from serviceconnected causes. Currently, if a member dies due to service-connected causes, the surviving spouse is entitled to 50% of the final average salary at the time of the member s death. In addition, any surviving dependent children are entitled to 10% of the member s final average salary for each child. However, the total benefit cannot exceed 75% of the final average salary. Bills in the Second Chamber Under HB 2111, the surviving spouse benefit would be the greater of 50% of the member s final average salary or the amount that the member s retirement benefit would have been had the member elected to retire on the 1st of the month following the date of death and elected the joint and 100% survivor benefit option. There is no change to the benefits of the surviving children. SB 137 increases the total cap on benefits to 90% of final average salary. The Senate Committee amended the bill to make the provisions retroactive to July 1, Senate Committee on Ways and Means House Committee in Financial Institutions and Pensions Administrative Costs: SB 137 would require some upgrades to existing information technology systems. However, the upgrades would not require significant changes and can be funded within existing resources. Actuarial Costs: KPERS consulting actuary estimated the cost of the proposed change based on 2015 HB 2709 and the 12/31/2014 actuarial valuation. Using the actual service-connected death experience of the System, the actuary estimated that the changes proposed in SB 137 would increase the KP&F unfunded actuarial liability by $605,000 resulting in a 0.01% increase in the unfunded actuarial liability portion of the employer contribution rate. In addition, the normal cost of benefits was estimated to increase by 0.01%, for a total increase in the employer contribution rate of 0.02%. This increase in the employer contribution rate would result in additional revenue to the Trust Fund. However, the impact of 0.02% on just the KP&F employer contribution would be a very small change in revenues of less than $50,000. The actuary estimates that the costs of implementing SB 137 will be similar to the estimate that was completed based on the 12/31/2014 valuation. The policy in SB 137 is in Conference Committee because it has passed both chambers in separate bills (SB 137 and HB 2111), but the bill remains in the House Committee. However, it was also amended into SB 205, which has become law.

9 Bills in the Second Chamber KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM Senate Bill 138 (As Amended by Senate Committee of the Whole) Senate Bill 138, as amended by Senate Committee of the Whole, makes several changes to existing working after retirement policy in K.S.A , K.S.A and K.S.A ,204. SB 138 establishes a new rule for working after retirement for any member who retires on and after January 1, For those retirees, SB 138 establishes a 180-day waiting period if the member is less than age 62 at retirement and a 60-day waiting period if the member is age 62 or older. After completing the waiting period and provided that there was no pre-arranged agreement between the retiree and the employer to return to work, a retiree can return to work for a KPERS affiliated employer without an earnings limit. The employer who hires the retiree is required to enroll the retiree in working after retirement and report all compensation to KPERS. If the retiree is hired in a KPERS-covered position (not seasonal or temporary, more than 630 hours (school) or 1000 hours (state and local), the employer is required to pay an employer contribution of 30% on the retiree s compensation. If the retiree is in a non-covered position, there is no employer contribution. The hardship, hard-to-fill and special education exemptions that were created on July 1, 2016, are eliminated effective January 1, Retirees who have already returned to work will continue to be grandfathered, although the grandfathering rules are altered by SB 138: Grandfathered, licensed school positions would continue to have no earnings limit and an employer contribution rate of the actuarial required contribution (ARC) rate plus 8% (24.03% in FY 2017). However, this grandfathered group is expanded to any member who retires before January 1, 2018, under normal retirement or May 2, 2017 under early retirement. Existing policy requires the member to have retired under normal retirement before May 1, 2015, or retired under early retirement before March 29, Grandfathered non-licensed retirees (those who accepted a position prior to May 1, 2015) would continue to have a $25,000 earnings limit and no employer contribution if they work for the same employer, and no earnings limit and an employer contribution of the actuarial required contribution (ARC) rate plus 6%, if working for a different employer. Non-licensed retirees lose their grandfathered status if they change employer or if they have a break in service or change positions Retirees grandfathered in the pre-2006 category keep their grandfathered status and it is unchanged. SB 138, as amended by Senate Committee of the Whole, effectively creates a new grandfathered group of non-licensed retirees who are not in an existing grandfathered category and who retire before January 1, Those retirees remain under the current rules ($25,000 earnings limit, employer contribution equal to the statutory rate). In addition, there would be no hardship exemption available to this group of retirees. SB 138 also amends the definition of compensation for legislators to include only federal taxable income.

10 Bills in the Second Chamber KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM Senate Bill 138 (As Amended by Senate Committee of the Whole) Senate Committee on Ways and Means House Committee in Financial Institutions and Pensions Administrative Costs: There would be additional administrative costs caused by SB 138 for member and employer education and information technology changes. However, under the current scope of the bill, the administrative costs can be funded within existing resources. Actuarial Costs: Background. The ability to return to work for a KPERS-affiliated employer after retirement can have multiple legal and actuarial ramifications. For this reason, there have long been limitations on working after retirement, including either a limitation on earnings if returning to work for the same employer from which the member retired or an employer contribution if returning to work for a different employer. Beginning July 1, 2009, licensed school professionals, including teachers, administrators, and such professional staff as psychologists and speech therapists, were provided with an exemption from the earnings limitation whether working for the same or different employer. Employers were required to pay contributions equal to the actuarial rate plus 8%. Major revisions to working after retirement laws were enacted during the 2015 and 2016 legislative sessions. The new rules included application of a $25,000 earnings limit whether a retiree is working for the same or a different employer, and creation of several exemptions to the earnings limit, including a hardship exemption available to all KPERS employers and two exemptions unique to schools i.e., exemptions for special education teachers and hard-to-fill positions, as designated by the Kansas Board of Education. These exemptions are time limited (maximum of four years individually and in combination) and subject to a 30% contribution rate, which is to be the subject of a periodic actuarial evaluation. The existing exemption for licensed school professionals, was extended through July 1, 2020, for those KPERS members who retired before May 1, However, as amended by the Senate Committee, the proposed amendments in SB 138 would effectively reinstate the licensed school professional exemption as it was in effect prior to July 1, 2016 for members retiring before January 1, And effective January 1, 2018, SB 138 would establish a 180-day waiting period for members who are under age 62 at retirement, while retaining the existing 60-day limit for those who are age 62 or older. However, for all members retiring on and after January 1, 2018, the earnings limit would be eliminated and employers would be required to pay employer contributions at a 30% rate for any of these retirees who are rehired in a covered position and 0% if rehired in a non-covered position. Actuarial Implications. The policy changes contained in SB 138 have the potential to affect retirement decisions of KPERS members. If a member is able to retire and receive both a pension and a salary from a KPERS employer, they may decide that it is in their best financial interest to retire at a younger age than they may have otherwise retired. Generally, working after retirement policies that could incent members to retire at a younger age have an actuarial cost to the System. For example, the ability to work without an earnings limit as a licensed school professional could incentivize a member to retire

11 Bills in the Second Chamber but continue working in their same or a similar position. That scenario would create an actuarial cost to the plan. Data regarding use of the licensed school professional exemption beginning in 2009 does indicate that retirees making use of the licensed school professional exemption were retiring at younger ages than the general population of retirees, which leads to increases in KPERS actuarial liability for those members. The legislative changes made in were intended to address both potential legal issues with retirements that do not involve a bona fide separation from service and to reduce the incentives for retirees to begin drawing benefits before they are prepared to stop working (i.e. retire at younger ages). On the other hand, for members younger than age 62 who retire on or after January 1, 2018, the longer 180-day waiting period may to some degree offset the incentive to retire that can result from lifting the earnings limit. However, because the cost is behaviorally based, KPERS is not able to anticipate the net actuarial impact of SB 138. SB 138 would eliminate other protections to KPERS that were enacted in the 2015 and 2016 working after retirement rules, including: Actuarial review of the contribution rate. Current law provides for the 30% employer contribution rate to be evaluated on or before July 1, 2019, and at least every three years thereafter, based on KPERS experience with employment of retirees under the exemption. This evaluation is to assess whether the contribution rate can be expected to fund adverse experience or higher liabilities due to working after retirement policy. SB 138 does not provide for such an assessment with respect to the 30% employer contribution rate for members retiring after January 1, 2018 and working in a covered position or to the expanded exemption for licensed school professionals it would reestablish. Limitations on term of reemployment. Beginning July 1, 2016, retirees were limited to working without an earnings limit for a maximum of four years whether under one of the new exemptions or as a grandfathered licensed school professional or some combination of these exemptions. SB 138 eliminates any limits on the length of time retirees can work without an earnings limit. Requirements to attempt to fill positions with active members. As a requirement for the existing exemptions (special education, hard-to-fill, and hardship), employers are to continue recruiting to fill the position filled by a retiree with a non-retiree (an employee who is an active member of KPERS) and to maintain documentation of such attempts. The Joint Committee on Pensions, Investments, and Benefits is authorized to review such documentation and to revoke an exemption where it determines the employer has not made sufficient efforts to hire a non-retiree. SB 138 does not include any similar requirements for the licensed school professional exemption or for members retiring after January 1, Restrictions on exemption for early retirement. Under the earlier exemption from the earnings limit for licensed school professionals, only those members who retired at normal or full retirement were eligible, except for members who took early retirement before May 28, SB 138 expands eligibility for grandfathered status under the expanded licensed school professional exemption to members who took early retirement before May 1, And all members retiring after January 1, 2018, could return to work without an earnings limit whether or not they took early retirement.

12 Senate Bill 138 (As Amended by Senate Committee of the Whole) Bills in the Second Chamber Sunset on exemption. Under current law, the grandfathered licensed school professional exemption and the new exemptions would sunset July 1, SB 138 reinstates a licensed school professional exemption without a sunset date. The exact costs of these changes in SB 138 cannot be calculated because they each may affect member behavior in a different way. However, when these changes to KPERS working after retirement policies are taken as a whole, it is expected that eligible KPERS members (licensed school professionals retiring before January 1, 2018) will continue to have an incentive to begin receiving KPERS retirement benefits at younger ages, similar to the patterns seen beginning in Likewise, members age 62 or older are able to retire with a 60-day waiting period and no earnings limit, which would also increase the incentive for this substantial group of members to receive KPERS benefits earlier than they might otherwise. Maintaining the requirement for employers and retirees to sign a document that there has been no prearranged agreement to return to work could be something of a deterrent for members who are thinking of retiring with the intention of returning to work as it may reduce the certainty of re-employment for those members and employees honoring its intent. The policy in SB 138 (working after retirement) was ultimately passed in House Substitute for SB 21.

13 House Bill 2268 (As Amended by House Committee) During the 2016 Legislative Session, 2016 SB 138 made a number of changes to working after retirement legislation passed in As a part of SB 138, a number of the new provisions were made subject to a July 1, 2020 sunset, including the $25,000 earnings limit, the grandfathering provision for members who retired before May 1, 2015, and are subsequently hired in a licensed school professional position, and the hardship, hard-to-fill, and special education exemptions. HB 2268, as introduced, would extend this sunset date from July 1, 2020 to July 1, Bills in the Second Chamber The House Committee on Financial Institutions and Pensions made several amendments to HB 2268: 1. Working after retirement sunset date. Retained the existing sunset date of July 1, HB 2268, as introduced, delayed the working after retirement sunset date by one year, to Third party and independent contractors. Provided clarification about the way working after retirement restrictions apply to retirees returning to work for KPERS employers as independent contractors or through a third party contractor. The language now requires a three-part test to determine whether a person is subject to the working after retirement rules: prior to retirement, the member did not hold a position similar to the one being filled the activities performed are not normally performed exclusively by an employee; and the activities performed are on a limited-term basis. 3. Regents provision. Included the provisions of HB 2005, clarifying that KPERS retirees who work for Regents institutions in positions covered by the Regents retirement plan are exempt from the working after retirement earnings limit. 4. Consolidate exemptions. Created a single emergency exemption that could be used for up to three years with a possibility of a one-year extension (after submitting an assurance protocol) and eliminate the hardship, hard-to-fill and special education exemptions. Like the existing exemptions, employers filling a position under the emergency exemption would pay a contribution rate of 30% of the retiree s compensation. In addition, the bill eliminates grandfathered status for licensed school professionals who retired before May 1, 2015, but provides for them to be covered by the new emergency exemption. 5. Legislative earnings cap. Clarified that certain legislative expenses would not be considered in applying the working after retirement earnings cap for KPERS retirees serving as legislators. 6. Technical amendment. Changed a specific statutory reference to 8.0 percent as the assumed investment rate of return to the rate as specified by the Board of Trustees (now 7.75%). 7. Age 62 exemption. Added a new exemption from the working after retirement rules for any member who retires at the age of 62 or later on and after July 1, Employers must pay a 30% contribution on these rehired retirees. House Committee on Financial Institutions and Pensions Senate Committee of the Whole

14 Bills in the Second Chamber KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM House Bill 2268 (As Amended by House Committee) Administrative Costs: HB 2268, as amended, makes several changes to the existing working after retirement rules, including eliminating some existing exemptions and adding a new exemption. The changes will likely require some changes to KPERS information technology system. At this time, it is estimated that the changes can made within existing resources. Actuarial Costs: Most of the amendments in HB 2268 do not have a material fiscal impact on KPERS. However, three of the amendments to HB 2268 may in some way affect the ability of retirees to return to work without an earnings limit: the clarifications relating to third party and independent contractors; the Regents provision, and addition of an age 62 exemption. Exemptions from the earnings limitation for retirees returning to work can impact the cost of retirement benefits, with the degree of the impact dependent on the number of retirees affected and the demographic characteristics of the employees (e.g., age, earnings, gender, and years of service). The potential for such an impact results primarily from two factors: 1. Exemptions from working after retirement restrictions can change retirement patterns and behavior, stemming from incentives for members to retire later or earlier than they would have absent the exemption. 2. Actuarial assumptions are set regarding rates of retirement by age. Projections of actuarial liabilities and calculations of the actuarial contribution rates needed to fund those liabilities are built on the assumption that members will retire at certain rates. To the extent the proportion of members retiring is higher than the assumptions, actuarial liabilities and the actuarial contribution rate may increase. Members can be expected to act in their own financial interest. Retirees who can continue receiving pension benefits while earning all or a significant portion of their pre-retirement salary through employment with a KPERS-affiliated employer can realize a significant increase in their income. This potential financial benefit can be a significant incentive for members to modify the timing of their retirement. Therefore, changes to the existing exemptions that make it easier for a member to receive both a pension and salary could be expected to become a material factor in members decisions about when to retire. There is no precise way to quantify with any certainty the cost impact of permitting KPERS members to return to work without an earnings limit. However, members can be expected to take advantage of the exemption if it is in their best financial interests. Because the affected employers are paying contributions on the compensation of retired licensed professionals at 30% of the retiree s salary, KPERS is continuing to receive contributions on the position filled by a retiree. However, it is not possible to project the extent or impact of changes in retirement patterns among the group of employees eligible for reemployment without an earnings limit. A precise cost cannot be calculated, and it is unclear whether the 30% is sufficient to cover the increased liability of any change in retirement patterns. Therefore, there is also likely to be a long-term cost associated with changes in retirement patterns and behaviors. House Bill 2268 contains, in part, the provisions of House Bill The topic of HB 2268 (working after retirement) was ultimately passed in House Substitute for SB 21.

15 House Bill 2289 (As Amended by House Committee) HB 2289 amends K.S.A and K.S.A by expanding the definition of participating service for both KP&F members and KPERS members who are employed as police and firefighters. The new language specifies that any period of time away from work or normal duties while in a paid status authorized and approved by a participating employer constitutes participating service. The language further specifies that it includes, without limit, any administrative leave with pay and any paid vacation leave, sick leave, personal leave, worker s compensation leave, and light duty or temporary duty assignment. This definition would apply retroactively to July 1, Bills in the Second Chamber The House Committee amended the bill by requiring the member to return to work in the same or similar position in order to be credited with participating service. If a member does not meet the requirements to receive participating service, KPERS would reimburse the employee and the employer for any contributions received for the period that was not credited to the member. House Committee on Financial Institutions and Pensions Senate Committee on Financial Institutions and Insurance In general, both KPERS and KP&F members currently receive service credit for periods of time spent on vacation and sick leave, and for up to 10 days on administrative leave, so long as the employer is reporting at least 50% of the member s normal pay. Members earn one quarter of service for every quarter of service in which he or she works. Moreover, members who qualify for disability benefits are automatically credited with service back to the date of the disability. Therefore, in KPERS experience, there are limited circumstances in which a member s service credit might be adversely affected due to administrative leave. The bill is not specific about the payment of contributions while a member is on approved leave, which is essential if service credit is to be awarded for that period of time. However, as long as a member and their employer continue to make contributions on the full amount of the employee s compensation the cost to the System is expected to be minimal, even though an exact effect cannot be calculated. As introduced, the bill made the definition of creditable service very broad for all KP&F and all KPERS members. The new definition would allow employers in some situations to use KPERS as a personnel management tool, which would be a foundational shift in policy from current law. As amended, the scope of HB 2289 is narrowed somewhat by requiring the member to return to work in the same or a similar position, under most circumstances, in order for the time spent on leave to be credited. As amended, the scope of HB 2289 is also narrowed by limiting its application to KP&F members and KPERS members who are employed as police and firefighters. House Bill 2289, as introduced, is identical to Senate Bill 205, as introduced.

16 Substitute House Bill 2331 (As Amended by House Committee of the Whole) House Bill 2331, as introduced, would allow for the creation of the Kansas Information Security Office (KISO). This new office would centralize cybersecurity for all executive branch agencies (including non-cabinet agencies like KPERS). Bills in the Second Chamber The House Committee amended the bill to include the contents of HB 2359, which establishes a new Kansas Information Technology Enterprise (KITE) as a cabinet-level agency. All state agencies information technology resources would be consolidated under the KITE, and all non-regents Executive Branch agency information technology directors and all staff performing information technology functions would report directly to the Executive Branch Chief Information Technology Officer. The legislation seeks to consolidate and transfer all non-regents Executive Branch IT staff, resources, functions, powers and duties to KITE under the authority of the Executive Branch Chief Information Technology Officer. While representatives have indicated noncabinet agencies, such as KPERS, are not a priority with respect to such consolidation, the bill does not distinguish between cabinet and non-cabinet agencies. The House Committee of the Whole amended Substitute HB 2331 by exempting KPERS from inclusion in the new policy. House Committee on Government, Technology and Security Senate Committee on Ways and Means Because KPERS is excluded from Substitute HB 2331, as amended by the House Committee of the Whole, there would be no cost to KPERS. If KPERS were to be included, the cost to run the new KISO is stated to be $10 million annually. However, it is not known how the costs would be allocated to each executive branch agency or how those costs would compare to KPERS current expenditures for cybersecurity measures. In addition, the KITE provisions provide the new agency with authority to assess fees for its services. However, it is not known how the costs would be allocated to each executive branch agency or how those costs would compare to KPERS current expenditures for information technology resources. KPERS identified potential issues that could arise from being a part of the KISO and the KITE. As a Trust Fund, there are several considerations that must be managed in order to ensure that Trust Fund assets are not being used to fund costs associated with other agencies. If assets of the trust fund were to be transferred to KITE, it is likely to be a prohibited transaction under IRS rules. In addition, it is not clear to what extent KPERS would retain the authority and flexibility to independently address cybersecurity issues pertinent to its operations if the centralized services do not effectively meet KPERS needs. SB 204 is a duplicate of HB 2331, as introduced.

17 Senate Bill 161 (As Introduced) SB 161, as it pertains to KPERS, would amend K.S.A Supp by removing language that exempts FY 2017 KPERS employer contributions from the allotment powers of the Secretary of Administration. Senate Committee on Ways and Means Senate Committee on Ways and Means Administrative Costs: SB 161 does not require any additional administrative duties of KPERS. Administrative costs that may arise from the current version of the bill can be funded within existing resources. Bills in the Chamber of Origin Long-Term Funding Costs: SB 161 would subject FY 2017 state and school employer contributions to reduction through the statutory allotment process in K.S.A Reductions to FY 2017 employer contributions directly reduce the funding received by the Trust Fund in FY 2017 and also reduce the funds available for investment and assumed growth over time. Generally, making lower contributions today requires higher contributions in the future in order to fully fund the System. Currently, the statutory KPERS State/School employer contribution rate is lower than the Actuarial Required Contribution rate. This means that the employer contributions received are not covering the total cost required to fund member benefits allocated to the contribution year (FY 2017 in this case). Further employer contribution reductions in FY 2017 only makes the gap between the statutory rate and actuarial rate larger in FY 2017, which then makes future contribution requirements even higher. Moreover, significant drops in contribution amounts such as occurred in FY 2016 and as could be contemplated for FY 2017 under SB 161 may adversely affect cash flow and, as a result, the System s long-term investment strategy and asset allocation. The KPERS Board of Trustees has already increased its allocation to cash and liquid assets by 1% in March 2016 and an additional 1% in January of this year in light of the FY 2016 allotment and the Governor s proposed FY 2017 reduction in KPERS employer contributions. Such shifts in asset allocation may negatively affect KPERS returns and ability to meet its current 7.75% investment return assumption, posing additional challenges to sustainable funding of the System. Reductions to KPERS employer contributions for the state and school groups in FY 2017 were enacted under HB 2052, rather than through the existing statutory allotment process.

18 Senate Bill 204 (As Introduced) Senate Bill 204 would allow for the creation of the Kansas Information Security Office (KISO). This new office would centralize cybersecurity for all executive branch agencies (including non-cabinet agencies like KPERS). At this time, the bill authorizes the creation of the KISO, but there is no timeline for when KPERS cybersecurity would be moved to the KISO. Bills in the Chamber of Origin Senate Committee on Ways and Means Senate Committee on Ways and Means The cost to run the new KISO is stated to be $10 million annually. However, it is not known how the costs would be allocated to each executive branch agency or how those costs would compare to KPERS current expenditures for cybersecurity measures. KPERS identified potential issues that could arise from being a part of the KISO. As a Trust Fund, there are several considerations that must be managed in order to ensure that Trust Fund assets are not being used to fund costs associated with other agencies. If assets of the trust fund were to be transferred to KITE, it is likely to be a prohibited transaction under IRS rules. In addition, it is not clear to what extent KPERS would retain the authority and flexibility to independently address cybersecurity issues pertinent to its operations if the centralized services do not effectively meet KPERS needs. House Bill 2359 also deals with information technology consolidation among executive branch agencies. House Bill 2331, as introduced, was a duplicate of Senate Bill 204. HB 2331 has been amended to include the provisions of 2359, but also amended to exempt KPERS from the policy change.

19 Senate Bill 213 (As Introduced) SB 213 would amend K.S.A Supp ,117 by adding member contributions made on a pretax basis pursuant to K.S.A (the Regents 403(b) retirement plan) to taxable income for State tax purposes. KPERS member contributions are already included in taxable income for State tax purposes. Bills in the Chamber of Origin Senate Committee on Assessment and Taxation Senate Committee on Assessment and Taxation SB 213 would have no fiscal impact on the KPERS System. Senate Bill 213, as introduced, is identical to House Bill 2283, as introduced.

20 Senate Bill 227 (As Introduced) SB 227, as introduced, would provide an ad hoc cost of living adjustment (COLA) for retirees who have been retired for at least 5 years as of July 1, The COLA is structured to provide the following increases: Bills in the Chamber of Origin Years Since Retirement Amount of ad hoc COLA* 0-5 years No Adjustment 5-10 years 1.0% increase years 2.0% increase 15 or more years 3.0% increase *Increases in the monthly benefit due to the cost of living adjustment cannot exceed $150 per month. Senate Committee on Ways and Means Senate Committee on Financial Institutions and Insurance KPERS consulting actuary completed a cost study on SB 227 and projected the increase to the unfunded actuarial liability that would occur if SB 227 was passed as introduced. The projected increase to the unfunded actuarial liability totals $164.2 million for all KPERS retirement plans. SB 227 does not specify the length of the amortization period to fund the cost of living adjustment. For the cost study, the actuary assumed the increase in the unfunded actuarial liability would be amortized over 15 years for the cost analysis. Under a 15-year amortization period, SB 227, as introduced, is projected to cost $15.31 million in FY 2018 ($11.71 million from all funds in State contributions) and $15.77 million in FY 2019 ($12.06 million from all funds in State contributions). SB 227, as introduced, is identical to HB 2323, as introduced.