Kansas Public Employees Retirement System KPERS Overview and Benefits Presented by: Alan D. Conroy, Executive Director Phone: 785-296-6880 Email: aconroy@kpers.org House Financial Institutions and Pensions January 16, 2019 1
Kansas Public Employees Retirement System Dependable Benefits. Trusted Partner. KPERS is a fiduciary providing retirement, disability and survivor benefits to our members and their beneficiaries with a 98-member staff. KPERS administers three statewide, defined benefit plans for public employees. Kansas Public Employees Retirement System Kansas Police and Firemen s Retirement System Kansas Retirement System for Judges KPERS partners with more than 1,500 state and local government employers. State of Kansas 286 school districts 105 counties 425 cities and townships Other employers include libraries, hospitals, community colleges and conservation districts 2
KPERS Overview
KPERS Overview How KPERS Works Legislature defines benefits and funding Membership eligibility Vesting Employee and employer contributions Benefit formula Service credit Retirement eligibility Actuary estimates how much benefits will cost Employers and members make contributions KPERS invests the money over time KPERS pays benefits with contributions + investment earnings - expenses KPERS is not like Social Security Social Security utilizes contributions from current employees to pay the benefits of current retirees KPERS benefits are pre-funded ; current contributions are invested to pay benefits down the road 4
KPERS Overview Status of KPERS The fiduciary standard is our guiding principle and driving force. KPERS serves members as a fiduciary, holding assets in trust for them, growing those assets through investments and delivering promised benefits when the time comes. As a trust, funds can never be removed for any reason other than to fund the benefits of members and pay expenses of the System. Long-term funding is very important, but with approximately $19 billion in assets today and a well diversified investment portfolio, KPERS is able to pay promised benefits for many, many years. 5
KPERS Overview Active Membership on 12/31/2017 Average Active Members Average Age Average Service KPERS-State 46.7 12.1 KPERS-School 45.0 11.2 KPERS-Local 45.4 10.3 KP&F 39.1 11.3 Judges 58.0 11.4 6
KPERS Overview Retired Membership on 12/31/2017 Average Retired Members and Beneficiaries Average Age Average Benefit KPERS-State 72.6 $14,249 KPERS-School 72.4 $15,428 KPERS-Local 72.3 $12,129 KP&F 65.6 $33,340 Judges 75.1 $41,964 7
KPERS Overview Investments FY 2017 return: 12.7%* FY 2018 return: 8.7%* 7.75% long-term return assumption Earned 8.2% over 25 years through the end of FY 2018 (6/30/2018) Total Returns by Fiscal Year 30% 22.6% 20% 14.9% 14.0% 18.4% 12.7% 10% 3.7% 8.7% 1.0% 0.7% 0% -10% -20% -19.4% -30% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 7.75% Investment Return Assumption *Gross total return for all assets 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Annualized Total Return through 6/30/2018 8.7% 8.7% 8.2% 7.2% 7.1% 1-Year 3-Year 5-Year 10-Year 25-Year 7.75% Investment Return Assumption 8
KPERS Overview Historical Fiscal-Year Returns 25.0% 22.6% 20.0% 15.0% 10.0% 16.5% 13.8% 11.2% 18.0% 15.4% 12.1%12.3% 14.9% 18.4% 14.0% 12.7% 8.7% 5.0% 0.0% 4.0% 1.0% 3.7% 0.7% -5.0% -10.0% -15.0% -4.7% -7.3% -4.4% -20.0% -25.0% -19.6% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Fiscal Year Annual Total Return Investment Return Assumption** * Time weighted total return, gross of fees ** The investment return assumption was changed to 7.75%, effective 1/1/2018, as part of the most recent statutory triennial experience study. 9
KPERS Overview FY 2018 Contributions KPERS employees contribute 6% of pay. KPERS employers contributions % of pay set by annual actuarial valuation. Statutory cap on annual rate increase. State pays for state and school employees. The Legislature approved an additional $56 million in contributions that were paid in FY 2018. Total contributions for FY 2018: $1.3 billion KPERS Contributions by Source FY 2018 (dollars in millions) Employee Contributions $420 Additional Contribution $56 Employer Contributions $832 10
KPERS Benefits KPERS 1, 2 and 3 Kansas Police and Firefighters (KP&F) Judges Retirement System Death and Disability Optional Group Life Insurance 11
KPERS Benefits Member benefit payments Retirement benefits for all but KPERS 3 based on a formula: Final average salary x years of service x multiplier Benefits are paid for retiree s lifetime and, depending on benefit option selected, for life of joint annuitant $4,000 death benefits for beneficiary of retiree KPERS paid about $1. 7 billion in total benefits in FY 2018 (retirement, death benefits, disability benefits, withdrawals) 12
KPERS Benefits KPERS 1 Traditional Defined Benefit Plan Membership dates before 7/1/2009 Final average salary x years of service x multiplier (1.85%)* Final average salary = 3 highest years of salary (if membership date after 7/1/93) Vesting = 5 years Normal retirement: 85 points (age + years of service) Age 62 with 10 years of service Age 65 with 1 year of service 20-year KPERS 1 member Final average salary $40,000 Service 20 years Benefit $14,800 a year 30-year KPERS 1 member Final average salary $40,000 Service 30 years Benefit $22,200 a year *KPERS 1 multiplier is 1.75% for all service prior to 2014 13
KPERS Benefits KPERS 2 Traditional Defined Benefit Plan 20-year KPERS 2 member Final average salary $40,000 Service 20 years Benefit $14,800 a year 30-year KPERS 2 member Final average salary $40,000 Service 30 years Benefit $22,200 a year Membership dates between 7/1/2009 and 1/1/2015 Final average salary x years of service x multiplier (1.85%) Final average salary = 5 highest years of salary Vesting = 5 years Normal retirement: Age 60 with 30 years of service Age 65 with 5 years of service 14
KPERS Benefits KPERS 3 Cash Balance Plan All members since 1/1/2015 Defined benefit plan with defined contribution characteristics Defined contribution features Value of benefit is expressed during working years as account value However, accounts are notional or hypothetical accounts Assets don t precisely match account values as in a defined contribution plan Reflects compensation earned over entire career Investment, inflation and longevity risks may be shared with employee Defined benefit features Benefit is paid as lifetime income in retirement (Lump sum may be optional form of payment) Guaranteed interest crediting rate provides definitely determinable benefit Assets are pooled and professionally managed Actuarial valuation determines contributions required to fund the plan Required actuarial contributions vary depending on the actual experience compared to actuarial assumptions 15
KPERS Benefits What the cash balance plan accomplishes Employers and current employees take shared steps toward a funding solution Future employees in cash balance plan share risk to a greater degree than in a traditional defined benefit plan Greater flexibility to change new cash balance plan design to manage future affordability and sustainability issues Existing defined benefit plan stays OPEN no adverse impact on cash flow, asset allocation or investment return assumption Guaranteed lifetime benefit as the basic foundation for retirement income Reduce total employer contributions over long-term 16
KPERS Benefits KP&F Traditional Defined Benefit Plan Final average salary x years of service x multiplier (2.5%) Final average salary = 3 highest of last 5 years of salary Vesting = 15 years Normal retirement: Age 50 with 25 years of service Age 55 with 20 years of service Age 60 with 15 years of service Benefits capped at 90% of final average salary (36 years of service) 20-year KP&F member Final average salary $60,000 Service 20 years Benefit $30,000 a year 30-year KP&F member Final average salary $60,000 Service 30 years Benefit $45,000 a year 17
KPERS Benefits Judges Traditional Defined Benefit Plan 10-year Judges Member Final average salary $100,000 Service 10 years Benefit $35,000 a year 20-year Judges Member Final average salary $100,000 Service 20 years Benefit $70,000 a year Final average salary x years of service x multiplier (3.5%) Final average salary = 3 highest of last 10 years of salary Vesting = Immediate Normal retirement: 85 points (age + years of service) Age 62 with 10 years of service Age 65 with 1 year of service Benefits capped at 70% of final average salary (20 years of service) 18
KPERS Benefits Death and Disability 100% employer funded with 1% of total payroll contribution This contribution has been subject to contribution moratoria in the past Any person unable to perform regular occupation for the first 24 months and unable to perform any occupation after 24 months is entitled to a disability benefit Benefit waiting period of 180 days Benefits total 60% of compensation at time of disability with a max monthly benefit of $5,000 Rehabilitative programs are available to help people return to work without immediately losing all disability benefits $4,000 death benefit 19
KPERS Benefits Additional coverage beyond regular death benefit Employers can choose to affiliate for Optional Group Life Insurance. Employees choose coverage and pay premiums through payroll deduction. Standard Insurance Company (The Standard) is KPERS basic and optional group life insurance provider. 20
Optional Group Life Insurance Coverage at a glance 21
Personal Savings Deferred Compensation Savings Plan KPERS 457 is a voluntary savings plan administered by KPERS. KPERS 457 can be adopted by employers as a savings vehicles for employees. Employees choose to enroll in the savings program. 23
Personal Savings Critical for a Sound Retirement Pension benefits are just one part of retirement income. KPERS and Social Security are not likely to be enough. Personal savings is critical to cover the gap. Essential for KPERS 3 members By offering your employees the KPERS 457 Plan, you are making a significant contribution to their retirement security. 24
Personal Savings KPERS 457 Can Help No cost for employers In its fiduciary role, KPERS oversees plan document updates, investment options, the service provider and participant education Employers offering their own plan are fully responsible for those fiduciary duties Competitive cost to employees and high quality investments Free online investment advice Pre-tax or Roth contributions Salary and pension data from KPERS help employees with comprehensive retirement income planning Local, dedicated counselors who are familiar with how KPERS & KPERS 457 fit together are available statewide for on-site individual and group meetings 25
Questions? 26