Bills Signed into Law

Transcription

1 House Bill 2095 (Law) Bills Signed into Law Senate Substitute for HB 2095 contains both working after retirement provisions and a new DROP pilot program for the Kansas Highway Patrol. The working after retirement provisions change the existing policy governing retirees returning to work starting July 1, Most new retirees will be subject to an annual $25,000 earnings limitation if they return to work for any KPERS affiliated employer. If they reach or exceed the $25,000 earnings limitation they must either choose to keep working and suspend their benefit or stop working and continue receiving their benefit. Employers contribute the statutory employer rate for all wages paid to the retiree. There are exceptions to the general rule for special education teachers, and hard-to-fill school positions. Those retirees will be allowed to return to work with no earnings limitation for a period of up to 3 years. If they continue to work beyond the 3 year window they fall under the earnings limitation. School districts contribute actuarial contribution rate (ARC) plus 8% and must maintain documentation of their efforts to fill the position being filled by a retiree. In addition, all employers can fill a position with a retiree with no earnings limitation in instances of a hardship. Hardships are decided by the governing entity of each employer and allow for a 1-year exemption to the earnings limitation. Employers contribute ARC+8% and must maintain documentation of efforts to fill the position with a non-retiree. State hospital nurses, Kansas Law Enforcement Training Center instructors, and elected city and county officials are completely exempted from the earnings limitation. Employers contribute the ARC rate plus the employee contribution rate (currently 6%). Licensed school professionals who retired before May 1, 2015 may stay under their current working after retirement rules until July 1, 2017, at which point they are also covered by the new rules. All other retirees who returned to work or had an agreement to return to work prior to May 1, 2015, may remain under their current working after retirement rules so long as they remain in the same position. The pilot Deferred Retirement Option Plan (DROP) for the Kansas Highway Patrol members of KP&F includes: Members may enter the DROP at normal retirement age, Members must select a period of 3-5 years to continue working, during which time their benefit is deposited into a DROP account, which may be credited interest when certain investment thresholds are met. At ultimate retirement, the member receives the balance of the DROP account as a lump sum or a rollover to another qualified account. The DROP sunsets in FY Signed by the Governor April 2015

2 House Bill 2095 (Law) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM While the cost of working after retirement cannot be reliably calculated, the new working after retirement rules appear to have fewer incentives for a member to retiree when first eligible and return to work. Generally, it appears that the new working after retirement rules would be less costly from an actuarial standpoint than the current rules. The pilot DROP is designed to be funded by both the member and employer in an attempt to have no negative cost impact on the system. The plan will result in an estimated increase in the uniform KP&F employer contribution rate of 0.04%. The majority of administrative expenses for Senate Substitute for HB 2095 will be necessary upgrades to the information technology system, which would be approximately $200,000 for working after retirement and $80,000 for the DROP. There will be additional staff time necessary for the new tracking requirements of both working after retirement and DROP, additional FTE may be necessary to adequately administer the new policy. HB 2095 was initially the House bonding authorization bill. SB 228 contains the final provisions regarding the authorization of bonds to be credited to the unfunded actuarial liability of the State/School Group. 2 of 18

3 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM Senate Substitute for HB 2101 (Law) Senate Substitute for HB 2101 changes the definition of police, policeman or policemen. Since July 1, 1999, K.S.A has required that police, policeman or policemen means an employee who is assigned to the police department, is certified by the Kansas Law Enforcement Training Center (KLETC), whose primary duties are the enforcement of law, and who is specifically designated by the employer as a police officer. SB 228 would expand the KP&F eligible group to include police, policeman or policemen who are assigned to the police department, whose primary duties include engagement in enforcement of law, are KLETC certified and designated by their employer as a police officer, and who have been contributing to the KP&F retirement system even if they have been assigned full or part time to a local correctional facility. The provisions are retroactive to July 1, Senate Select Committee on KPERS Signed by the Governor The wording of the bill specifies that it applies to employees who have been contributing members to KP&F on and after July 1, To the extent the bill applies only to those employees who have already been contributing as KP&F members prior to the effective date of HB 2101, these employees would have been considered as KP&F members for purposes of actuarial valuations, and the actuarial cost to the system would be negligible. Administratively, no necessary changes to information technology systems or administrative processes have been identified. There may be some costs associated with executing this change, but it is anticipated that the costs could be covered within the current budget. If HB 2101 is applied more broadly, there could be changes in the pool of KP&F members due to the bill, and those changes will be reflected in the actuarial assumptions going forward and any cost changes will flow through the annual valuation to the actuarial required contribution (ARC) rate. However, the extent to which membership demographics will change, if any, is unknown and a cost cannot be calculated. Senate Substitute for HB 2101 was the final vehicle that made the policy changes described above. The language was originally contained in SB 228. Senate Substitute for HB 2101 originally contained provisions for a new KP&F deferred retirement option plan (DROP). The KP&F DROP is also contained in HB 2288 and Senate Substitute for HB of 18

4 Senate Bill 228 (Law) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM The Conference Committee on SB 228 struck the bill s original provisions pertaining to the definition of police for KP&F eligibility and inserted the Conference Committee agreement authorizing bonds to be used for reducing the unfunded actuarial liability of the State/School Group. The Conference Committee agreement includes the authorization of $1.0 billion in bonds, net of fees, at a rate of no greater than 5%. The State Finance council must approve any bond issues before bonds are sold. The debt service on the bonds is subject to State General Fund appropriation and not an obligation of the System. SB 228 also resets the employer contribution rate for the State/School Group for FY 2016 and FY Provided that the Legislature does not make interest only payments or capitalize the interest in the first years of debt service, the FY 2016 rates will decrease from 12.37% to 10.91% and the FY 2017 rate will decrease from 13.57% to 10.81%. If there are interest only payments or capitalized interest, the employer contribution rate will be the currently certified rates (12.37% in FY 2016 and 13.57% in FY 2017). Senate Select Committee on KPERS Signed by the Governor Additional contributions to the KPERS State/School Group Unfunded Actuarial Liability (UAL) will affect the long term funding of the plan. Because the bond proceeds do not alter the amortization period for the UAL, crediting $1.0 billion to the UAL will lower the employer contribution rate necessary to achieve a percent funded ratio by FY Based on a cost study of the impact of the single addition of $1.0 billion as of December 31, 2015, the estimated impact on the overall funded ratio of the plan is an increase from 60.7% funded on 12/31/2015 under current law to 65.8% funded as of the same date under SB 228. The cost study for SB 228 estimates that between FY 2015 and FY 2046, current law will require employer contributions totaling $15.9 billion (plus $455 million in additional ELARF contributions), while the addition of $1.0 billion in FY 2016 would reduce employer contributions over the same time period to $14.9 billion. The difference, in nominal dollars, is a reduction in total employer contributions of $1.059 billion. These contribution totals do not include amortization payments on the bonds, which would be paid by the State from sources other than KPERS contributions. SB 228 originally contained a new definition of police for purposes of KP&F eligibility. That language was placed in Senate Substitute for HB 2101 by the Conference Committee. 4 of 18

5 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM HB 2253 (As Amended by House Committee) Bills on the Senate or House Floor Currently there are a range of working after retirement rules that depend on whether the member is returning to work for the employer from which the member retired or for a different employer. In addition, there is a special exemption from KPERS working after retirement restrictions that is available to retired teachers and other retired, licensed school professionals (such as administrators, psychologists, and speech therapists). These retirees are permitted to return to work for the same employer without an earnings limit, and there is a special employer contribution rate that applies to compensation earned by these rehired retirees (the actuarial rate plus 8%). HB 2253, as amended, makes changes to the current working after retirement provisions, including: Applies to all KPERS members and employers, regardless of whether the member returns to work for the same or a different employer or in a licensed or non-licensed position. Working after retirement rules are applied based on whether the retiree is hired in a covered or non-covered position. (Covered positions are not temporary or seasonal and require a minimum of 1,000 hours of work or more per year or 630 hours per year for school members. Non-covered positions are all other positions that don t meet these criteria.) No earnings limitation applies during re-employment in a KPERS covered position, whether hired by the same or a different employer. o The retirement benefit for any retiree who returns to work in a covered position is suspended and the retiree is made a KPERS Tier 3 member. o Retirees who become part of KPERS Tier 3 and employers make the required contributions to KPERS. A retiree returning to work for a KPERS employer in a non-covered position (whether the same or a different employer) and earning less than $20,000 per year would continue to receive full KPERS benefits and salary up to the earnings limitation. Current rules apply once the retirees earns $20,000 (cease employment or benefit suspended). Two special exemptions are provided for licensed school personnel special education positions and hard-to-fill positions. o Any retiree who returns to work in a licensed special education teacher position (same or different employer) would not have an earnings limitation and would continue receiving pension benefits. The employer would be required to pay the actuarial rate plus 8% on the retiree s compensation. o Any retiree returning to a position approved by the Department of Education as hardto-fill (same or different employer) would not have an earnings limit and would continue receiving pension benefits. The employer would be required to pay the actuarial rate plus 8% on the retiree s compensation. The retiree would be allowed to work for no more than one year under this exemption. Daily call substitutes and legislative staff are subject to the new rules, but state hospital nurses retain their current exemption from working after retirement rules. These new provisions are set to sunset on June 30, 2017, at which time working after retirement provisions other than the special education exemption would return to the rules in effect before The special education exemption is then set to expire on June 30, of 18

6 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM HB 2253 (As Amended by House Committee) House Committee of the Whole HB 2253 as amended would require changes to KPERS information technology system and additional FTE positions for monitoring and education of members affected by the new plan. Administrative costs are estimated to be $239,000 in FY 2016 and $97,000 in FY An actuarial cost of HB 2253 is not calculable due to the unknown effect of the new provisions on member behavior. However, in general, changes that encourage members eligible for unreduced benefits to retire earlier than they would otherwise do so will tend to increase the costs of the System. There is a significant financial incentive for this behavior when members can retire and return to work, as they are being paid both a salary and a retirement benefit. The opportunity for a member to return to work for the same employer particularly tends to encourage earlier retirement followed by working after retirement once the waiting period is completed. It is expected the fewer KPERS members will utilize the working after retirement provisions in HB 2253 than are utilizing the current working after retirement rules. However, it is not possible to estimate the net impact of these changes in retirement patterns, the potential trend in delayed retirements, and changes in employee and employer contributions. The number of members electing to delay retirement and their ages at retirement would also be a key factor in the cost impact of HB HB 2253 was amended by House Committee to include the new unretirement plan. As introduced, the bill was a 3-year extension of the current working after retirement rules. 6 of 18

7 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM House Bill 2073 (As Introduced) Bills in Committee in the Chamber of Origin HB 2073 would change the mandatory retirement age of Court of Appeals Judges and Kansas Supreme Court Justices from 75 to 65 and change the mandatory retirement age for all other Judges from 75 to 70. Currently, the normal retirement provision for judges is (a) age 65, (b) age 62 with ten years of service, or (c) any age when combined age and years of credited service equal 85 (Rule of 85). House Committee on Judiciary House Committee on Appropriations An actuarial cost study of HB 2073 has been performed by KPERS consulting actuary, Cavanaugh Macdonald, based on the 12/31/2013 actuarial valuation. The current actuarial assumption used for retirement by members in the Judges Retirement System is that 100% of Judges retire by age 70, which means there is no cost impact for the Judges not on the Court of Appeals or Supreme Court. The cost impact on the Court of Appeals Judges and Kansas Supreme Court Justices is projected to be an increase of $1.6 million in the Unfunded Actuarial Liability for the Judges Retirement System. This translates to an increase in the employer contribution rate of 0.72%. 7 of 18

8 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM House Bill 2250 (As Introduced) HB 2250 provides for a one-time, permanent increase in the retirement benefits for eligible retirees and their joint annuitants as follows: Eligibility Requirement Benefit Increase Retired after July 1, % Retired on or before July 1, % Retired on or before July 1, % Retired on or before July 1, % Retired on or before July 1, % Retired on or before July 1, % Retired on or before July 1, % The benefit increase (COLA) would begin July 1, 2015, for approximately 87,000 eligible members of KPERS, the Kansas Police and Fire Retirement System (KP&F), and the Kansas Judges Retirement System (Judges). The actuarial cost study projects that HB 2250 will increase the total Unfunded Actuarial Liability by $65.3 million, by group the totals are as follows: State/School $48.0 million Local $7.4 million KP&F $9.4 million Judges $0.5 million Commonly, legislation providing for post-retirement benefit increases has specified a period of time over which the increased actuarial liability is to be amortized. HB 2250 did not specify the period over which to amortize the increase in the UAL or whether payments should be determined as a level percent of covered payroll or as level dollar amounts. If a 15-year amortization was used, the actuarial projections indicate the following increases in the employer contribution rate would be necessary to fully fund the cost of living adjustment: State/School 0.10% increase Local 0.04% increase KP&F State 0.31% increase KP&F Local 0.17% increase Judges 0.20% increase 8 of 18

9 HB 2287 (As Introduced) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM HB 2287 would require the Kansas Public Employees Retirement System to identify all investments in scrutinized companies, which are defined as companies having, with actual knowledge, on or after August 5, 1996, made an investment of $20 million or more in Iran s petroleum sector which directly or significantly contributes to the enhancement of Iran s ability to develop the petroleum resources of Iran. Once those companies are identified, the System would be required to engage the scrutinized companies, encouraging them to cease their scrutinized business activities or make them inactive, in order to avoid divestment by the System. If the scrutinized companies fail to do so within 90 days, the Board would be required to divest of those investments within twelve months. House Bill 2287 requires the Board to file a report with the Joint Committee on Pensions, Investments and Benefits listing the scrutinized companies within 30 days after the list is created, and annually thereafter, detailing the activities taken with respect to scrutinized companies, and listing all investments which were divested and all investments remaining in scrutinized companies. House Committee on Taxation HB 2287 is expected to increase the System s costs in several ways: 1. Administrative costs for subscriptions to third party research services to assist in identifying the scrutinized companies from which to divest; 2. Administrative costs in terms of investment staff time required to identify the scrutinized companies, correspond with the companies, communicate required divestment to investment managers, prepare and present reports to the KPERS Board and the Joint Committee, and monitor investment holdings; and 3. Transaction fees for the sale of investments in scrutinized companies, and reinvestment in alternative investments. We are unable to provide precise estimates of each of these costs. However, we do understand that the cost to subscribe to a third-party research service would be approximately $20,000 per year. We expect that the investment staff time required to comply with the System s existing Sudan divestment requirements as well as new Iran divestment requirements could be as much as 0.5 FTE for additional investment staff. One of the System s international equity managers has estimated transactions costs at 5 to 6 basis points for the international equity portfolio. On a current market value of $4.3 billion, this would translate to $2.2 to $2.6 million per year. In addition, some reduction in investment income revenues would be expected due to sale of securities that would otherwise be included in KPERS portfolio. This tracking error is estimated to be an addition 5 basis points of the market value of the international equity portfolio ($2.2 million on a portfolio with a market value of $4.3 billion). 9 of 18

10 HB 2288 (As Introduced) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM House Bill 2288 would create the Kansas Police and Firemen s Retirement System (KP&F) Deferred Retirement Option Plan (DROP). A DROP is a plan design feature where a member initiates the calculation of a retirement benefit, but opts to defer actual receipt of the benefit for a specified period. During this specified DROP period, the member continues working and paying employee contributions while the member s benefit is credited to a notional account and made available in a lump sum when the member ultimately leaves employment. The DROP plan design contained in HB 2288 would only apply to the State initially, but local KP&F employers will have the opportunity to opt into the DROP. Members may enter the DROP at normal retirement age, must select a period of 3-5 years to continue working during which time their benefit is deposited into a DROP account, which may be credited interest at the KPERS Board of Trustees discretion when certain investment thresholds are met. At ultimate retirement, the member receives the balance of the DROP account as a lump sum or a rollover to another qualified account. An actuarial cost study of HB 2288 has been performed by KPERS consulting actuary, Cavanaugh Macdonald. The cost study identifies two factors which, in particular, affect the impact of the DROP plan on KP&F and employer costs the option for local employers to participate in the plan, and potential changes in retirement decisions of members eligible for the DROP plan. These two variables make it nearly impossible to provide any type of reliable cost estimate for the DROP. The intent of the bill is that any changes in cost to the System due to the DROP will be reflected only in the employer contribution rate of employers who have adopted the DROP plan and therefore spread across the payroll of State KP&F members and the members of KP&F employers electing to offer the DROP plan. Identical language to HB 2288 was contained in Senate Substitute for HB However, that language was removed by the Conference Committee on Senate Substitute for HB of 18

11 HB 2360 (As Introduced) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM HB 2360 would add two new elected trustees to the KPERS Board of Trustees. One would be elected by the members of the Kansas Police and Fire Retirement System (KP&F), and the second would be elected by the Judges Retirement System (Judges). In both cases, the elected trustee must be a member of the group he or she represents. Currently, two members of the nine-member Board of Trustees are elected from among the System s membership one representing members of the School Group, and the other elected from among any of the other remaining groups, including KP&F and Judges. Those elected positions would continue, with state or local KPERS members eligible for the non-school position. The total number of trustees would increase from 9 to 11 members. Therefore, while elected members currently represent about 22% of the Board, the proportion would increase to 36% of the Trustees. As is the currently case for other trustees, the bill would not stipulate in law when elections for the two new members are required to be held. Because HB 2360 does not stipulate when the elections of the two additional trustees are to be held, it is assumed the elections would be held at the same time as that for the two existing elected trustees. The next election will be held in 2017, in which case the newly elected trustees would begin a four-year term in July Expenditures related to the election are therefore assumed to begin in FY Administrative costs associated with the addition of two additional trustees include programming for the online voting functions (a one-time cost estimated at $17,000), which are assumed to be in FY Annual costs for subsistence, lodging, and hospitality expenditures for travel to and from meetings of the Board (typically seven, two-day meetings per year), software licensing, and training per trustee ranges from $2,500 to $4,250, depending on the location of the trustee s residence. However, it is expected that these expenses would be managed within KPERS existing administrative expenditure limits. Assuming the two positions are elected at the same time as the existing School and Non-School positions, these expenses would begin during FY of 18

12 HB 2416 (As Introduced) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM HB 2416 changes the way that sick and annual leave are used in calculating a KPERS and KP&F member s final average salary at retirement and implements a new cap on the amount of annual leave that can be accrued by employees of affiliated KPERS and KP&F employers. Currently, KPERS members who joined the system or were in their year of waiting on July 1, 1993 can use the higher of two final average salary calculations: 1. The average of the 3 highest years of annual salary; or 2. The average of the 4 highest years of annual salary including add-on pay. Add-on pay includes longevity, holiday leave, comp-time, and sick, vacation and annual leave payouts. KP&F members with membership dates before July 1, 1993, can also include sick, vacation, and annual leave in the calculation of their final average salary (which is the highest annual compensation paid to the member for any three of the last five years of service immediately before retirement or termination of employment). Effective with retirements on and after January 1, 2016, HB 2416 removes the use of sick, vacation and annual leave as payouts that would be included in KPERS and KP&F final average salary calculations. The bill does not eliminate the 4-year calculation for pre-1993 KPERS members, it limits the allowed add-ons used in the calculation. In addition, HB 2416 establishes a hard cap of 240 hours on the amount of vacation time that can be accrued by any employee of a participating employer. This applies to KPERS and KP&F employers. The bill stipulates that any employees who is above the 240 hour cap on July 1, 2015, would be compensated for all of the hours above the cap. The payments could be a single payment or multiple payments made over not more than three years as negotiated between the employee and employer. House Committee on Appropriations House Committee on Calendar and Printing 12 of 18

13 HB 2416 (As Introduced) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM KPERS consulting actuary completed an actuarial cost study of eliminating the 4-year final average salary calculation for pre-1993 KPERS members based on the 12/31/2013 actuarial valuation and its assumptions and actuarial methods, including the 8% return assumption. Because the cost study uses data that is more than 1-year old and assumes no member uses the 4-year final average salary calculation (which is more restrictive than HB 2416 as introduced), the cost projections should be considered as the maximum possible. HB 2416 is projected to reduce the unfunded actuarial liability (UAL) for KPERS by $49 million. In addition, the change in the benefit structure of eliminating one of the final average salary calculations reduces the normal cost, albeit very marginally (0.01%-0.03%). The combined reduction in employer contribution rates totals 0.18% for the State Group, 0.04% for the School Group, and 0.07% for the Local Group. Similarly, based on projected demographics for the closed pre-1993 KP&F group as of 12/31/2015, HB 2416 is projected to reduce the UAL for KP&F by $31 million, resulting in a reduction of 0.51% for KP&F employers. Based on the 12/31/2013 payroll estimate, the reduction in the employer contribution rate would result in approximately $2.7 million less to the KPERS Trust Fund. In both cases, the reduced revenue reflects lower employer contributions required to fund benefits for pre-1993 members. HB 2416 is not anticipated to create any additional expenditures for KPERS with respect to its own employees. 13 of 18

14 HB 2426 (As Introduced) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM HB 2426 changes the way that sick and annual leave are used in calculating a KPERS member s final average salary at retirement and implements a new cap on the amount of annual leave that can be accrued by employees of affiliated KPERS employers. Currently, KPERS members who joined the system before or were in their year of waiting on July 1, 1993, (pre-1993 members) can use the higher of two final average salary calculations: 3. The average of the 3 highest years of annual salary; or 4. The average of the 4 highest years of annual salary including add-on pay. Add-on pay includes longevity, holiday leave, comp-time, and sick, vacation and annual leave payouts. HB 2426 would establish limits on accrual of leave and use of leave in calculating final average pay. HB 2426 establishes a hard cap of 240 hours on the amount of vacation time that can be accrued by any employee of a participating employer. Members above the 240-hour cap on July 1, 2015, would be able to use their accrued vacation leave, but could not accumulate any additional vacation leave so long as the balance remains above 240 hours. HB 2426 also caps the accrual of sick time for use in a member s final average salary calculation at the amount accrued on July 1, Members could accumulate and use additional sick time, but the amount accrued after July 1, 2015, could not be counted as add-on pay for purposes of calculating final average salary. Finally, HB 2426 appears to limit the use of add-ons for purposes of calculating final average salary to only those that were earned within the last four years of retirement. The intent of this language is not clear, but it can be read as applying to all forms of addon pay. In addition to limiting the amount of accumulated leave used in determining the final average salary for pre-1993 members, HB 2426 would limit the pay rate that could be used in determining the value of accrued leave. Members would be paid for the accrued vacation and sick leave at their current pay rate on termination in accordance with the employer s policies. However, for purposes of valuing the vacation and sick leave used in calculating final average pay, the member s pay rate as of July 1, 2015, is to be used. House Committee on Appropriations House Committee Commerce, Labor and Economic Development 14 of 18

15 HB 2426 (As Introduced) KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM Limiting the use and value of vacation and sick leave and other add-ons would be expected to reduce benefits for some pre-1993 members, and therefore, would tend to reduce KPERS s liabilities. However, KPERS does not have any data regarding members existing vacation and sick leave balances or the point at which they were earned. Therefore it is not possible to project the actuarial impact of HB However, some context can be provided by projecting the impact of eliminating use of vacation and sick leave payouts in final average salary calculations for pre-1993 KPERS members. KPERS consulting actuary completed such an actuarial cost study, based on the 12/31/2013 actuarial valuation and its assumptions and actuarial methods, including the 8% return assumption. The cost study differs from HB 2426, but it gives an idea of the magnitude of the proposed changes. Totally eliminating use of vacation and sick leave is projected to reduce the unfunded actuarial liability (UAL) for KPERS by a maximum of $49 million. In addition, the change in the benefit structure of eliminating one of the final average salary calculations reduces the normal cost, albeit very marginally (0.01%-0.03%). The combined reduction in employer contribution rates by totally eliminating vacation and sick leave from final average salaries totals 0.18% for the State Group, 0.04% for the School Group, and 0.07% for the Local Group. A reduction in actuarial required contribution rates would ultimately result in fewer contributions entering the KPERS Trust Fund. However, because the State/School Group statutory employer contribution rate is below the actuarial required contribution rate, only the Local Group reduction would result in reduced contributions beginning FY Using the 12/31/2013 payroll estimate and applying the rate reduction above results in an estimated reduction of $1.2 million (for the Local Group only). In both cases, the reduced revenue reflects lower employer contributions required to fund benefits for pre-1993 members. However, HB 2426 would not be expected to result in savings of the amount projected by the cost study. 15 of 18

16 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM Senate Bill 168 (As Amended by Senate Committee) Senate Bill 168 would authorize the issuance of bonds for an additional payment or payments toward the unfunded actuarial liability of the KPERS State/School Group. The bill authorizes the Kansas Development Finance Authority (KDFA) to issue one of more series of revenue bonds of not to exceed $1.0 billion plus costs of issuance. The bonds are subject to the approval of the State Finance Council and a maximum, all inclusive rate of 5.0%. Subject to these provisions and limitations, the terms of the bonds, including their final maturities, whether issued as a single or multiple series of bonds, and the timing of the issuance, are at the discretion of KDFA. In addition, SB 168 sets the State/School employer contribution rates at 10.91% in FY 2016, 10.81% in FY 2017 and 10.48% in FY 2018 unless the bonds are structured to delay principal payments or capitalize interest payments, in which case the employer contribution rates remain at the certified rate subject to the statutory cap. The expenditures toward debt service are assumed to be paid from the State General Fund, outside of the KPERS budget. According to KDFA, estimated debt service payments on a $1.0 billion taxable bond with a 30-year amortization period would total approximately $60 million annually under recent market conditions. Senate Select Committee on KPERS KPERS consulting actuary completed an actuarial cost study of a single additional contribution to the KPERS Trust Fund in the amount of $1.0 billion on December 31, That cost study was based on the 12/31/13 actuarial valuation and its assumptions and actuarial methods, including the assumed 8.0 percent return on investment, plus the set employer contribution rates described above. Additional contributions to the KPERS State/School Group Unfunded Actuarial Liability (UAL) from bond proceeds will affect the long term funding of the plan. Based on a cost study of the impact of the single addition of $1.0 billion as of December 31, 2015, the estimated impact on the overall funded ratio of the plan is an increase from 60.7% funded on 12/31/2015 under current law to 65.8% funded as of the same date under SB 168 as amended. Because the bond proceeds do not alter the amortization period for the UAL, crediting $1.0 billion to the UAL will lower the employer contribution rate necessary to achieve a percent funded ratio by FY The cost study for SB 168 as amended estimates that between FY 2015 and FY 2046, current law will require employer contributions totaling $15.9 billion (plus $455 million in additional ELARF contributions), while the changes in SB 168 as amended would increase employer contributions over the same time period in nominal dollars to $15.1 billion. On a present value basis, total employer contributions over the 30-year period would be reduced by $1.1 billion. SB 228 contains the final provisions regarding the authorization of bonds to be credited to the unfunded actuarial liability of the State/School Group. 16 of 18

17 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM Senate Bill 299 (As Introduced) SB 299 would establish new working after retirement guidelines starting July 1, Currently there are a range of working after retirement rules that depend on whether the member is returning to work for the employer from which the member retired (in which case there is a $20,000 annual earnings limit before retirement benefits are suspended for the remainder of the year) or for a different employer (where there is no earnings limit, but the employer must pay a contribution equal to the actuarial rate plus the employee contribution rate). In addition, there currently is a special exemption from KPERS working after retirement restrictions that is available to retired teachers and other retired, licensed school professionals (such as administrators, psychologists, and speech therapists). These retirees are permitted to return to work for the same or a different employer without an earnings limit. There is also a special employer contribution rate that applies to compensation earned by these rehired retirees (the actuarial rate plus 8%). The exemption and special employer contribution rate for licensed school professionals is scheduled to sunset on July 1, SB 299 would extend the current exemption and rate until June 30, The new guidelines would allow a retiree to return to work for the same employer or a different employer in a covered position, after a 60-day waiting period following retirement in which work is not performed for any KPERS employer and so long as the return to work is not the result of a pre-arrangement. The retiree s benefit would be suspended and an amount equivalent to the retirement benefit would accumulate in a notional account while the retiree was reemployed, rather than being received by the retiree during the reemployment period. Upon leaving reemployment (including a new 60-day waiting period), the retiree would be able to receive a distribution of the notional account balance in the form of a lump sum payment or through a direct rollover to another eligible plan. Retirees returning to work for a KPERS-affiliated employer in a non-covered position would be subject to the existing earnings limitation of $20,000. Upon reaching the earnings limitation in a single calendar year, the retiree must either stop working or suspend the retirement benefit for the remainder of the calendar year. Under current law there are exemptions from working after retirement guidelines for daily call substitutes, legislative staff and nurses at state hospitals. Under SB 299, these groups are not exempted from working after retirement guidelines. The new rules would apply to retirees who were first reemployed prior to July 1, 2016, no retirees would be grandfathered in under old working after retirement provisions. As is currently the case, retirees returning to work would not be eligible for active member death and disability benefits, but would remain eligible for the $4,000 death benefit for beneficiaries of retirees. Senate Committee on Assessment and Taxation Senate Select Committee on KPERS 17 of 18

18 KANSAS PUBLIC EMPLOYEES RETIREMENTS SYSTEM SB 299 requires establishment of new notional accounts for retirees returning to covered positions (including functions for determining and crediting an amount equivalent to the retirement benefit, crediting interest, and tracking eligibility for and processing distributions, and integrating the notional accounts into the member web portal), and it alters the reporting, tracking, and contributions required for retirees. As a result, SB 299 entails administrative costs in order to modify the information technology systems and provide associated member and employer communication, education, and services. The total cost includes $170,000 for information technology changes and approximately $100,000 and 2.0 FTE positions for enrollment, tracking of the individual member s notional account, and member and employer education. SB 299 would require employers to pay employer contributions equal to the actuarial required rate, the member contribution rate (currently 6% for all active members), plus 2% on the compensation of all retirees returning to work in covered positions. KPERS does not have data to identify which employees currently working after retirement would fall in covered and non-covered positions. Moreover working after retirement patterns may shift in response to the new rules in ways that increase retirement benefit costs. However, the net cost cannot be anticipated. Therefore, it is not possible to determine whether the new contribution structure would result in a net increase or decrease in total contributions for working after retirement. Current working after retirement contributions by KPERS employers are in the range of $8.5 million. 18 of 18