CHAPTER 116 SENATE Substitute for HOUSE BILL No. 2621 (Amended by Chapter 192)
An Act concerning retirement; relating to the Kansas public employees retirement system
and systems thereunder; benefits; eligibility; purchase of participating service; rollover
of distributions; retirement plans and accounts, contributions; death and disability ben-
efits; amending K.S.A. 72-8603, 74-4927g and 75-5524 and K.S.A. 2001 Supp. 74-4902,
74-4919m, 74-4927, 74-4927b, 74-4927f, 74-4966 and 74-49,123 and repealing the ex-
isting sections; also repealing K.S.A. 2001 Supp. 74-4919t.
Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 72-8603 is hereby amended to read as follows: 72-
8603. (a) The board of education of any school district or the board of
trustees of any community junior college shall contract with any of its
employees so requesting, upon request, for reductions in compensation
and the contribution thereof for tax sheltered annuities accounts and an-
nuities or deferred compensation plans as permitted under section 403(b)
or section 457 of the United States internal revenue code, for the benefit
of such employees. Any employee desiring to contract under the provi-
sions of this section shall express his or her wishes in writing to his or her
send written notice of such desire to such employee's employer within
semiannual thirty-day periods in accordance with rules and regulations of
such employer.

      (b) The board of education of any school district and the board of
trustees of any community college may contribute to a participant's 403(b)
account or annuity or 457 plan contracted for under the provisions of
subsection (a).

      Sec.  2. K.S.A. 2001 Supp. 74-4902 is hereby amended to read as
follows: 74-4902. As used in articles 49 and 49a of chapter 74 and amend-
ments thereto, unless otherwise provided or the context otherwise re-
quires:

      (1) ``Accumulated contributions'' means the sum of all contributions
by a member to the system which are credited to the member's account,
with interest allowed thereon;

      (2) ``acts'' means the provisions of articles 49 and 49a of the Kansas
Statutes Annotated and amendments thereto;

      (3) ``actuarial equivalent'' means an annuity or benefit of equal value
to the accumulated contributions, annuity or benefit, when computed
upon the basis of the actuarial tables in use by the system. Whenever the
amount of any benefit is to be determined on the basis of actuarial as-
sumptions, the assumptions shall be specified in a way that precludes
employer discretion;

      (4) ``actuarial tables'' means the actuarial tables approved and in use
by the board at any given time;

      (5) ``actuary'' means the actuary or firm of actuaries employed or
retained by the board at any given time;

      (6) ``agent'' means the individual designated by each participating em-
ployer through whom system transactions and communication are di-
rected;

      (7) ``beneficiary'' means any natural person or persons or estate
named by a member to receive any benefits as provided for by this act.
Designations of beneficiaries by a member who is a member of more
than one retirement system made on or after July 1, 1987, shall be the
basis of any benefits payable under all systems unless otherwise provided
by law. Except as otherwise provided by subsection (33) of this section,
if there is no named beneficiary living at time of member's death, any
benefits provided for by this act shall be paid to: (A) The member's sur-
viving spouse; (B) the member's dependent child or children; (C) the
member's dependent parent or parents; (D) the member's nondependent
child or children; (E) the member's nondependent parent or parents; (F)
the estate of the deceased member; in the order of preference as specified
in this subsection.

      (8) ``board of trustees,'' ``board'' or ``trustees'' means the managing
body of the system which is known as the Kansas public employees re-
tirement system board of trustees;

      (9) ``compensation'' means, except as otherwise provided, all salary,
wages and other remuneration payable to a member for personal services
performed for a participating employer, including maintenance or any
allowance in lieu thereof provided a member as part of compensation,
but not including reimbursement for travel or moving expenses or on and
after July 1, 1994, payment pursuant to an early retirement incentive
program made prior to the retirement of the member. Beginning with
the employer's fiscal year which begins in calendar year 1991 or for em-
ployers other than the state of Kansas, beginning with the fiscal year
which begins in calendar year 1992, when the compensation of a member
who remains in substantially the same position during any two consecutive
years of participating service used in calculating final average salary is
increased by an amount which exceeds 15%, then the amount of such
increase which exceeds 15% shall not be included in compensation, ex-
cept that (A) any amount of compensation for accumulated sick leave or
vacation or annual leave paid to the member, (B) any increase in com-
pensation for any member due to a reclassification or reallocation of such
member's position or a reassignment of such member's job classification
to a higher range or level and (C) any increase in compensation as pro-
vided in any contract entered into prior to January 1, 1991, and still in
force on the effective date of this act, pursuant to an early retirement
incentive program as provided in K.S.A. 72-5395 et seq. and amendments
thereto, shall be included in the amount of compensation of such member
used in determining such member's final average salary and shall not be
subject to the 15% limitation provided in this subsection. Any contribu-
tions by such member on the amount of such increase which exceeds
15% which is not included in compensation shall be returned to the mem-
ber. Unless otherwise provided by law, beginning with the employer's
fiscal year coinciding with or following July 1, 1985, compensation shall
include any amounts for tax sheltered annuities or deferred compensation
plans. Beginning with the employer's fiscal year which begins in calendar
year 1991, compensation shall include amounts under sections 403b, 457
and 125 of the federal internal revenue code of 1986 and, as the board
deems appropriate, any other section of the federal internal revenue code
of 1986 which defers or excludes amounts from inclusion in income. For
purposes of applying limits under the federal internal revenue code ``com-
pensation'' shall have the meaning as provided in K.S.A. 2001 Supp. 74-
49,123 and amendments thereto;

      (10) ``credited service'' means the sum of participating service and
prior service and in no event shall credited service include any service
which is credited under another retirement plan authorized under any
law of this state;

      (11) ``dependent'' means a parent or child of a member who is de-
pendent upon the member for at least 1/2 of such parent or child's support;

      (12) ``effective date'' means the date upon which the system becomes
effective by operation of law;

      (13) ``eligible employer'' means the state of Kansas, and any county,
city, township, special district or any instrumentality of any one or several
of the aforementioned or any noncommercial public television or radio
station located in this state which receives state funds allocated by the
Kansas public broadcasting commission whose employees are covered by
social security. If a class or several classes of employees of any above
defined employer are not covered by social security, such employer shall
be deemed an eligible employer only with respect to such class or those
classes of employees who are covered by social security;

      (14) ``employee'' means any appointed or elective officer or employee
of a participating employer whose employment is not seasonal or tem-
porary and whose employment requires at least 1,000 hours of work per
year, and any such officer or employee who is concurrently employed
performing similar or related tasks by two or more participating employ-
ers, who each remit employer and employee contributions on behalf of
such officer or employee to the system, and whose combined employment
is not seasonal or temporary, and whose combined employment requires
at least 1,000 hours of work per year, but not including: (A) Any employee
who is a contributing member of the United States civil service retirement
system; (B) any employee who is a contributing member of the federal
employees retirement system; (C) any employee who is a leased employee
as provided in section 414 of the federal internal revenue code of a par-
ticipating employer. ``Leased employee'' means the same as provided in
section 414 of the federal internal revenue code; and (D) any employee
or class of employees specifically exempted by law. After June 30, 1975,
no person who is otherwise eligible for membership in the Kansas public
employees retirement system shall be barred from such membership by
reason of coverage by, eligibility for or future eligibility for a retirement
annuity under the provisions of K.S.A. 74-4925 and amendments thereto,
except that no person shall receive service credit under the Kansas public
employees retirement system for any period of service for which benefits
accrue or are granted under a retirement annuity plan under the provi-
sions of K.S.A. 74-4925 and amendments thereto. After June 30, 1982,
no person who is otherwise eligible for membership in the Kansas public
employees retirement system shall be barred from such membership by
reason of coverage by, eligibility for or future eligibility for any benefit
under another retirement plan authorized under any law of this state,
except that no such person shall receive service credit under the Kansas
public employees retirement system for any period of service for which
any benefit accrues or is granted under any such retirement plan. Em-
ployee shall include persons who are in training at or employed by, or
both, a sheltered workshop for the blind operated by the secretary of
social and rehabilitation services. The entry date for such persons shall
be the beginning of the first pay period of the fiscal year commencing in
calendar year 1986. Such persons shall be granted prior service credit in
accordance with K.S.A. 74-4913 and amendments thereto. However, such
persons classified as home industry employees shall not be covered by
the retirement system. Employees shall include any member of a board
of county commissioners of any county and any council member or com-
missioner of a city whose compensation is equal to or exceeds $5,000 per
year;

      (15) ``entry date'' means the date as of which an eligible employer
joins the system. The first entry date pursuant to this act is January 1,
1962;

      (16) ``executive director'' means the managing officer of the system
employed by the board under this act;

      (17) ``final average salary'' means in the case of a member who retires
prior to January 1, 1977, and in the case of a member who retires after
January 1, 1977, and who has less than five years of participating service
after January 1, 1967, the average highest annual compensation paid to
such member for any five years of the last 10 years of participating service
immediately preceding retirement or termination of employment, or in
the case of a member who retires on or after January 1, 1977, and who
has five or more years of participating service after January 1, 1967, the
average highest annual compensation paid to such member on or after
January 1, 1967, for any five years of participating service preceding re-
tirement or termination of employment, or, in any case, if participating
service is less than five years, then the average annual compensation paid
to the member during the full period of participating service, or, in any
case, if the member has less than one calendar year of participating service
such member's final average salary shall be computed by multiplying such
member's highest monthly salary received in that year by 12; in the case
of a member who became a member under subsection (3) of K.S.A. 74-
4925 and amendments thereto, or who became a member with a partic-
ipating employer as defined in subsection (3) of K.S.A. 74-4931 and
amendments thereto and who elects to have compensation paid in other
than 12 equal installments, such compensation shall be annualized as if
the member had elected to receive 12 equal installments for any such
periods preceding retirement; in the case of a member who retires after
July 1, 1987, the average highest annual compensation paid to such mem-
ber for any four years of participating service preceding retirement or
termination of employment; in the case of a member who retires on or
after July 1, 1993, who was first hired as an employee, as defined in
subsection (14) of K.S.A. 74-4902 and amendments thereto, prior to July
1, 1993 whose date of membership in the system is prior to July 1, 1993,
and any member who is in such member's membership waiting period on
July 1, 1993, and whose date of membership in the system is on or after
July 1, 1993, the average highest annual compensation, as defined in
subsection (9), paid to such member for any four years of participating
service preceding retirement or termination of employment or the aver-
age highest annual salary, as defined in subsection (34), paid to such
member for any three years of participating service preceding retirement
or termination of employment, whichever is greater; and in the case of a
member who retires on or after July 1, 1993, and who is first hired as an
employee, as defined in subsection (14) of K.S.A. 74-4902 and amend-
ments thereto, on or after July 1, 1993 whose date of membership in the
system is on or after July 1, 1993, the average highest annual salary, as
defined in subsection (34), paid to such member for any three years of
participating service preceding retirement or termination of employment.
Final average salary shall not include any purchase of participating service
credit by a member as provided in subsection (2) of K.S.A. 74-4919h and
amendments thereto which is completed within five years of retirement.
For any application to purchase or repurchase service credit for a certain
period of service as provided by law received by the system after May 17,
1994, for any member who will have contributions deducted from such
member's compensation at a percentage rate equal to two or three times
the employee's rate of contribution or will begin paying to the system a
lump-sum amount for such member's purchase or repurchase and such
deductions or lump-sum payment commences after the commencement
of the first payroll period in the third quarter, ``final average salary'' shall
not include any amount of compensation or salary which is based on such
member's purchase or repurchase. Any application to purchase or repur-
chase multiple periods of service shall be treated as multiple applications.
For purposes of this subsection, the date that such member is first hired
as an employee for members who are employees of employers that
elected to participate in the system on or after January 1, 1994, shall be
the date that such employee's employer elected to participate in the sys-
tem. In the case of any former member who was eligible for assistance
pursuant to K.S.A. 74-4925 and amendments thereto prior to July 1, 1998,
for the purpose of calculating final average salary of such member, such
member's final average salary shall be based on such member's salary
while a member of the system or while eligible for assistance pursuant to
K.S.A. 74-4925 and amendments thereto, whichever is greater;

      (18) ``fiscal year'' means, for the Kansas public employees retirement
system, the period commencing July 1 of any year and ending June 30 of
the next;

      (19) ``Kansas public employees retirement fund'' means the fund cre-
ated by this act for payment of expenses and benefits under the system
and referred to as the fund;

      (20) ``leave of absence'' means a period of absence from employment
without pay, authorized and approved by the employer, and which after
the effective date does not exceed one year;

      (21) ``member'' means an eligible employee who is in the system and
is making the required employee contributions; any former employee who
has made the required contributions to the system and has not received
a refund if such member is within five years of termination of employment
with a participating employer; or any former employee who has made the
required contributions to the system, has not yet received a refund and
has been granted a vested benefit;

      (22) ``military service'' means service in the uniformed forces of the
United States, for which retirement benefit credit must be given under
the provisions of USERRA or service in the armed forces of the United
States or in the commissioned corps of the United States public health
service, which service is immediately preceded by a period of employ-
ment as an employee or by the entering into of an employment contract
with a participating employer and is followed by return to employment
as an employee with the same or another participating employer within
12 months immediately following discharge from such military service,
except that if the board determines that such return within 12 months
was made impossible by reason of a service-connected disability, the pe-
riod within which the employee must return to employment with a par-
ticipating employer shall be extended not more than two years from the
date of discharge or separation from military service;

      (23) ``normal retirement date'' means the date on or after which a
member may retire with full retirement benefits pursuant to K.S.A. 74-
4914 and amendments thereto;

      (24) ``participating employer'' means an eligible employer who has
agreed to make contributions to the system on behalf of its employees;

      (25) ``participating service'' means the period of employment after
the entry date for which credit is granted a member;

      (26) ``prior service'' means the period of employment of a member
prior to the entry date for which credit is granted a member under this
act;

      (27) ``prior service annual salary'' means the highest annual salary,
not including any amounts received as payment for overtime or as re-
imbursement for travel or moving expense, received for personal services
by the member from the current employer in any one of the three cal-
endar years immediately preceding January 1, 1962, or the entry date of
the employer, whichever is later, except that if a member entered the
employment of the state during the calendar year 1961, the prior service
annual salary shall be computed by multiplying such member's highest
monthly salary received in that year by 12;

      (28) ``retirant'' means a member who has retired under this system;

      (29) ``retirement benefit'' means a monthly income or the actuarial
equivalent thereof paid in such manner as specified by the member pur-
suant to this act or as otherwise allowed to be paid at the discretion of
the board, with benefits accruing from the first day of the month coin-
ciding with or following retirement and ending on the last day of the
month in which death occurs. Upon proper identification a surviving
spouse may negotiate the warrant issued in the name of the retirant. If
there is no surviving spouse, the last warrant shall be payable to the des-
ignated beneficiary;

      (30) ``retirement system'' or ``system'' means the Kansas public em-
ployees retirement system as established by this act and as it may be
amended;

      (31) ``social security'' means the old age, survivors and disability in-
surance section of the federal social security act;

      (32) ``total disability'' means a physical or mental disability which pre-
vents the member from engaging, for remuneration or profit, in any oc-
cupation for which the member is reasonably suited by education, training
or experience;

      (33) ``trust'' means an express trust, created by a trust instrument,
including a will, designated by a member to receive payment of the in-
sured death benefit under K.S.A. 74-4927 and amendments thereto and
payment of the member's accumulated contributions under subsection
(1) of K.S.A. 74-4916 and amendments thereto. A designation of a trust
shall be filed with the board. If there is a designated trust at the time of
the member's death, the insured death benefit for the member under
K.S.A. 74-4927 and amendments thereto and the member's accumulated
contributions under subsection (1) of K.S.A. 74-4916 and amendments
thereto shall be paid to the trust in lieu of the member's beneficiary. If
no will is admitted to probate within six months after the death of the
member or no trustee qualifies within such six months or if the designated
trust fails, for any reason whatsoever, the insured death benefit under
K.S.A. 74-4927 and amendments thereto and the member's accumulated
contributions under subsection (1) of K.S.A. 74-4916 and amendments
thereto shall be paid in accordance with the provisions of subsection (7)
of this section as in other cases where there is no named beneficiary living
at the time of the member's death and any payments so made shall be a
full discharge and release to the system from any further claims;

      (34) ``salary'' means all salary and wages payable to a member for
personal services performed for a participating employer, including main-
tenance or any allowance in lieu thereof provided a member as part of
salary. Salary shall not include reimbursement for travel or moving ex-
penses, payment for accumulated sick leave or vacation or annual leave,
severance pay or any other payments to the member determined by the
board to not be payments for personal services performed for a partici-
pating employer constituting salary or on and after July 1, 1994, payment
pursuant to an early retirement incentive program made prior to the
retirement of the member. When the salary of a member who remains
in substantially the same position during any two consecutive years of
participating service used in calculating final average salary is increased
by an amount which exceeds 15%, then the amount of such increase
which exceeds 15% shall not be included in salary. Any contributions by
such member on the amount of such increase which exceeds 15% which
is not included in compensation shall be returned to the member. Unless
otherwise provided by law, salary shall include any amounts for tax shel-
tered annuities or deferred compensation plans. Salary shall include
amounts under sections 403b, 457 and 125 of the federal internal revenue
code of 1986 and, as the board deems appropriate, any other section of
the federal internal revenue code of 1986 which defers or excludes
amounts from inclusion in income. For purposes of applying limits under
the federal internal revenue code ``salary'' shall have the meaning as pro-
vided in K.S.A. 2001 Supp. 74-49,123 and amendments thereto. In any
case, if participating service is less than three years, then the average
annual salary paid to the member during the full period of participating
service, or, in any case, if the member has less than one calendar year of
participating service such member's final average salary shall be com-
puted by multiplying such member's highest monthly salary received in
that year by 12;

      (35) ``federal internal revenue code'' means the federal internal rev-
enue code of 1954 or 1986, as in effect on July 1, 1998, and as applicable
to a governmental plan; and

      (36) ``USERRA'' means the federal uniformed services employment
and reemployment rights act of 1994 as in effect on July 1, 1998.

      Sec.  3. K.S.A. 2001 Supp. 74-4919m is hereby amended to read as
follows: 74-4919m. (1) Except as otherwise provided, any active contrib-
uting member of the retirement system who at one time had the state
board of regents assist such member in the purchase of retirement an-
nuities as provided in K.S.A. 74-4925 and amendments thereto and who
withdrew such member's accumulated contributions upon the termina-
tion of such employment as provided in K.S.A. 74-4925 and amendments
thereto may purchase such participating service credit for such service,
and any active contributing member of the retirement system may pur-
chase participating service credit for any waiting period required pur-
suant to K.S.A. 74-4925, and amendments thereto, regardless of whether
the state board of regents assisted such member in the purchase of retire-
ment annuities as provided in K.S.A. 74-4925, and amendments thereto.
Such member may purchase, subject to the provisions of K.S.A. 2001
Supp. 74-49,123 and amendments thereto such service credit by submit-
ting proof of such service acceptable to the board of trustees and electing
in writing to have employee contributions deducted as provided in K.S.A.
74-4919 and amendments thereto from such member's compensation at
an additional rate of contribution, in addition to the employee's rate of
contribution as provided in K.S.A. 74-4919 and amendments thereto,
based upon the member's attained age at the time of purchase and using
actuarial assumptions and tables in use by the retirement system at such
time of purchase for such periods of service. Such additional rate of con-
tribution shall commence at the beginning of the quarter following such
election and shall remain in effect until all of the full quarters of such
service have been purchased.

      (2) Any member of the Kansas public employees retirement system
who has not retired may purchase, subject to the provisions of K.S.A.
2001 Supp. 74-49,123 and amendments thereto participating service
credit for such service as described in this section with a participating
employer by making a single lump-sum payment in lieu of employee
contributions as provided in this section. The lump-sum payment shall
be in an amount determined by the actuary using (a) the member's then
current annual rate of compensation, (b) the actuarial assumptions and
tables currently in use by the system and (c) the member's attained age.

      Sec.  4. K.S.A. 2001 Supp. 74-4927 is hereby amended to read as
follows: 74-4927. (1) The board may establish a plan of death and long-
term disability benefits to be paid to the members of the retirement
system as provided by this section. The long-term disability benefit shall
not be payable until the member has been prevented from carrying out
each and every duty pertaining to the member's employment as a result
of sickness or injury for a period of 180 days and the annual benefit shall
not exceed an amount equal to 662/3% of the member's annual rate of
compensation on the date such disability commenced and shall be payable
in equal monthly installments. In the event that a member's compensation
is not fixed at an annual rate but on an hourly, weekly, biweekly, monthly
or any other basis than annual, the board shall prescribe by rule and
regulation a formula for establishing a reasonable rate of annual compen-
sation to be used in determining the amount of the death or long-term
disability benefit for such member. Such plan shall provide that:

      (A) For deaths occurring prior to January 1, 1987, the right to receive
such death benefit shall cease upon the member's attainment of age 70
or date of retirement whichever first occurs. The right to receive such
long-term disability benefit shall cease (i) for a member who becomes
eligible for such benefit before attaining age 60, upon the date that such
member attains age 65 or the date of such member's retirement, which-
ever first occurs, (ii) for a member who becomes eligible for such benefit
at or after attaining age 60, the date that such member has received such
benefit for a period of five years, upon the date that such member attains
age 70, or upon the date of such member's retirement, whichever first
occurs, (iii) for all disabilities incurred on or after January 1, 1987, for a
member who becomes eligible for such benefit at or after attaining age
70, the date that such member has received such benefit for a period of
12 months or upon the date of such member's retirement, whichever first
occurs, and (iv) for all disabilities incurred on or after January 1, 1987,
for a member who becomes eligible for such benefit at or after attaining
age 75, the date that such member has received such benefit for a period
of six months or upon the date of such member's retirement, whichever
first occurs.

      (B) Long-term disability benefit payments shall be in lieu of any ac-
cidental total disability benefit that a member may be eligible to receive
under subsection (3) of K.S.A. 74-4916 and amendments thereto. The
member must make an initial application for social security disability ben-
efits and, if denied such benefits, the member must pursue and exhaust
all administrative remedies of the social security administration which
include, but are not limited to, reconsideration and hearings. Such plan
may provide that any amount which a member receives as a social security
benefit or a disability benefit or compensation from any source by reason
of any employment including, but not limited to, workers compensation
benefits may be deducted from the amount of long-term disability benefit
payments under such plan. During the period in which such member is
pursuing such administrative remedies prior to a final decision of the
social security administration, social security disability benefits may be
estimated and may be deducted from the amount of long-term disability
benefit payments under such plan. Such long-term disability payments
shall accrue from the later of the 181st day of total disability or the first
day upon which the member ceases to draw compensation from the em-
ployer. If the social security benefit, workers compensation benefit, other
income or wages or other disability benefit by reason of employment, or
any part thereof, is paid in a lump-sum, the amount of the reduction shall
be calculated on a monthly basis over the period of time for which the
lump-sum is given. In no case shall a member who is entitled to receive
long-term disability benefits receive less than $50 per month. As used in
this section, ``workers compensation benefits'' means the total award of
disability benefit payments under the workers compensation act notwith-
standing any payment of attorney fees from such benefits as provided in
the workers compensation act.

      (C) The plan may include other provisions relating to qualifications
for benefits; schedules and graduation of benefits; limitations of eligibility
for benefits by reason of termination of employment or membership;
conversion privileges; limitations of eligibility for benefits by reason of
leaves of absence, military service or other interruptions in service; lim-
itations on the condition of long-term disability benefit payment by reason
of improved health; requirements for medical examinations or reports; or
any other reasonable provisions as established by rule and regulation of
uniform application adopted by the board.

      (D) On and after April 30, 1981, the board may provide under the
plan for the continuation of long-term disability benefit payments to any
former member who forfeits the entitlement to continued service credit
under the retirement system or continued assistance in the purchase of
retirement annuities under K.S.A. 74-4925 and amendments thereto and
to continued long-term disability benefit payments and continued death
benefit coverage, by reason of the member's withdrawal of contributions
from the retirement system or the repurchase of retirement annuities
which were purchased with assistance received under K.S.A. 74-4925 and
amendments thereto. Such long-term disability benefit payments may be
continued until such individual dies, attains age 65 or is no longer disa-
bled, whichever occurs first.

      (E) Any visually impaired person who is in training at and employed
by a sheltered workshop for the blind operated by the secretary of social
and rehabilitation services and who would otherwise be eligible for the
long-term disability benefit as described in this section shall not be eli-
gible to receive such benefit due to visual impairment as such impairment
shall be determined to be a preexisting condition.

      (2)  (A) In the event that a member becomes eligible for a long-term
disability benefit under the plan authorized by this section such member
shall be given participating service credit for the entire period of such
disability. Such member's final average salary shall be computed in ac-
cordance with subsection (17) of K.S.A. 74-4902 and amendments thereto
except that the years of participating service used in such computation
shall be the years of salaried participating service.

      (B) In the event that a member eligible for a long-term disability
benefit under the plan authorized by this section shall be disabled for a
period of five years or more immediately preceding retirement, such
member's final average salary shall be adjusted upon retirement by the
actuarial salary assumption rates in existence during such period of dis-
ability. Effective July 1, 1993, such member's final average salary shall be
adjusted upon retirement by 5% for each year of disability after July 1,
1993, but before July 1, 1998. Effective July 1, 1998, such member's final
average salary shall be adjusted upon retirement by an amount equal to
the lesser of: (i) The percentage increase in the consumer price index for
all urban consumers as published by the bureau of labor statistics of the
United States department of labor minus 1%; or (ii) four percent per
annum, measured from the member's last day on the payroll to the month
that is two months prior to the month of retirement, for each year of
disability after July 1, 1998.

      (C) In the event that a member eligible for a long-term disability
benefit under the plan authorized by this section shall be disabled for a
period of five years or more immediately preceding death, such member's
current annual rate shall be adjusted by the actuarial salary assumption
rates in existence during such period of disability. Effective July 1, 1993,
such member's current annual rate shall be adjusted upon death by 5%
for each year of disability after July 1, 1993, but before July 1, 1998.
Effective July 1, 1998, such member's current annual rate shall be ad-
justed upon death by an amount equal to the lesser of: (i) The percentage
increase in the consumer price index for all urban consumers published
by the bureau of labor statistics of the United States department of labor
minus 1%; or (ii) four percent per annum, measured from the member's
last day on the payroll to the month that is two months prior to the month
of death, for each year of disability after July 1, 1998.

      (3)  (A) To carry out the legislative intent to provide, within the funds
made available therefor, the broadest possible coverage for members who
are in active employment or involuntarily absent from such active em-
ployment, the plan of death and long-term disability benefits shall be
subject to adjustment from time to time by the board within the limita-
tions of this section. The plan may include terms and provisions which
are consistent with the terms and provisions of group life and long-term
disability policies usually issued to those employers who employ a large
number of employees. The board shall have the authority to establish and
adjust from time to time the procedures for financing and administering
the plan of death and long-term disability benefits authorized by this
section. Either the insured death benefit or the insured disability benefit
or both such benefits may be financed directly by the system or by one
or more insurance companies authorized and licensed to transact group
life and group accident and health insurance in this state.

      (B) The board may contract with one or more insurance companies,
which are authorized and licensed to transact group life and group acci-
dent and health insurance in Kansas, to underwrite or to administer or
to both underwrite and administer either the insured death benefit or the
long-term disability benefit or both such benefits. Each such contract with
an insurance company under this subsection shall be entered into on the
basis of competitive bids solicited and administered by the board. Such
competitive bids shall be based on specifications prepared by the board.

      (i) In the event the board purchases one or more policies of group
insurance from such company or companies to provide either the insured
death benefit or the long-term disability benefit or both such benefits,
the board shall have the authority to subsequently cancel one or more of
such policies and, notwithstanding any other provision of law, to release
each company which issued any such canceled policy from any liability
for future benefits under any such policy and to have the reserves estab-
lished by such company under any such canceled policy returned to the
system for deposit in the group insurance reserve of the fund.

      (ii) In addition, the board shall have the authority to cancel any policy
or policies of group life and long-term disability insurance in existence
on the effective date of this act and, notwithstanding any other provision
of law, to release each company which issued any such canceled policy
from any liability for future benefits under any such policy and to have
the reserves established by such company under any such canceled policy
returned to the system for deposit in the group insurance reserve of the
fund. Notwithstanding any other provision of law, no premium tax shall
be due or payable by any such company or companies on any such policy
or policies purchased by the board nor shall any brokerage fees or com-
missions be paid thereon.

      (4)  (A) There is hereby created in the state treasury the group in-
surance reserve fund. Investment income of the fund shall be added or
credited to the fund as provided by law. The cost of the plan of death
and long-term disability benefits shall be paid from the group insurance
reserve fund, which shall be administered by the board. Except as oth-
erwise provided by this subsection, each participating employer shall ap-
propriate and pay to the system in such manner as the board shall pre-
scribe in addition to the employee and employer retirement contributions
an amount equal to .6% of the amount of compensation on which the
members' contributions to the Kansas public employees retirement sys-
tem are based for deposit in the group insurance reserve fund. Notwith-
standing the provisions of this subsection, no participating employer shall
appropriate and pay to the system any amount provided for by this sub-
section for deposit in the group insurance reserve fund for the period
commencing on April 1, 2000, and ending on December 31, 2001, or for
the period commencing July 1, 2002, and ending December 31, 2002.

      (B) The director of the budget and the governor shall include in the
budget and in the budget request for appropriations for personal services
a sum to pay the state's contribution to the group insurance reserve fund
as provided by this section and shall present the same to the legislature
for allowances and appropriation.

      (C) The provisions of subsection (4) of K.S.A. 74-4920 and amend-
ments thereto shall apply for the purpose of providing the funds to make
the contributions to be deposited to the group insurance reserve fund.

      (D) Any dividend or retrospective rate credit allowed by an insurance
company or companies shall be credited to the group insurance reserve
fund and the board may take such amounts into consideration in deter-
mining the amounts of the benefits under the plan authorized by this
section.

      (5) The death benefit provided under the plan of death and long-
term disability benefits authorized by this section shall be known and
referred to as insured death benefit. The long-term disability benefit pro-
vided under the plan of death and long-term disability benefits authorized
by this section shall be known and referred to as long-term disability
benefit.

      (6) The board is hereby authorized to establish an optional death
benefit plan. Except as provided in subsection (7), such optional death
benefit plan shall be made available to all employees who are covered or
may hereafter become covered by the plan of death and long-term disa-
bility benefits authorized by this section. The cost of the optional death
benefit plan shall be paid by the applicant either by means of a system
of payroll deductions or direct payment to the board. The board shall
have the authority and discretion to establish such terms, conditions, spec-
ifications and coverages as it may deem to be in the best interest of the
state of Kansas and its employees which should include term death ben-
efits for the person's period of active state employment regardless of age,
but in no case, on and after January 1, 1989, shall the maximum allowable
coverage be less than $200,000. The cost of the optional death benefit
plan shall not be established on such a basis as to unreasonably discrim-
inate against any particular age group. The board shall have full admin-
istrative responsibility, discretion and authority to establish and continue
such optional death benefit plan and the director of accounts and reports
of the department of administration shall when requested by the board
and from funds appropriated or available for such purpose establish a
system to make periodic deductions from state payrolls to cover the cost
of the optional death benefit plan coverage under the provisions of this
subsection (6) and shall remit all deductions together with appropriate
accounting reports to the system. There is hereby created in the state
treasury the optional death benefit plan reserve fund. Investment income
of the fund shall be added or credited to the fund as provided by law. All
funds received by the board, whether in the form of direct payments,
payroll deductions or otherwise, shall be accounted for separately from
all other funds of the retirement system and shall be paid into the optional
death benefit plan reserve fund, from which the board is authorized to
make the appropriate payments and to pay the ongoing costs of admin-
istration of such optional death benefit plan as may be incurred in carrying
out the provisions of this subsection (6).

      (7) Any employer other than the state of Kansas which is currently a
participating employer of the Kansas public employees retirement system
or is in the process of affiliating with the Kansas public employees retire-
ment system may also elect to affiliate for the purposes of subsection (6).
All such employers shall make application for affiliation with such system,
to be effective on January 1 next following application. Such optional
death benefit plan shall not be available for employees of employers spec-
ified under this subsection until after July 1, 1988.

      Sec.  5. K.S.A. 2001 Supp. 74-4927b is hereby amended to read as
follows: 74-4927b. (1) For the purposes of providing the ``insured death
benefit'' and ``insured disability benefit'' as prescribed in K.S.A. 74-4927,
and amendments thereto, and for the purposes of providing the ``acci-
dental death benefit'' as prescribed in subsection (2) of K.S.A. 74-4916,
and amendments thereto, to those members of the faculty and other per-
sons employed by educational institutions under the management of the
state board of education who are receiving assistance in the purchase of
retirement annuities as provided in K.S.A. 74-4925, and amendments
thereto, the term ``member'' as used in subsection (2) of K.S.A. 74-4916,
and amendments thereto, and in K.S.A. 74-4927, and amendments
thereto, shall include the aforementioned members of the faculty and
other persons employed by educational institutions under the manage-
ment of the state board of education and who are receiving such assis-
tance.

      (2) Each institution under the state board of education furnishing
such assistance shall pay to the Kansas public employees retirement sys-
tem in such manner as the board of trustees shall prescribe each payroll
period an amount sufficient to pay the employer's contribution to the
group insurance reserve as provided in K.S.A. 74-4927, and amendments
thereto, and an amount sufficient to pay the amount of the employer's
contribution attributable to the accidental death benefit as prescribed in
subsection (2) of K.S.A. 74-4916, and amendments thereto. Subsection (2)
of K.S.A. 74-4932, and amendments thereto, shall also apply in deter-
mining such contributions and benefits.

      (3) Each such institution under the state board of education shall
maintain a file of the beneficiaries named by the persons covered under
the provisions of this act in the form and manner as prescribed by the
board of trustees.

      (4) In the event that a member of the faculty or other person as
herein defined becomes eligible for the insured disability benefit, the
respective educational institutions under the board of education herein-
before described shall continue to provide the assistance including the
payment of employers and employees contributions in the purchase of
the retirement annuities provided in K.S.A. 74-4925, and amendments
thereto, until the date of retirement.

      Sec.  6. K.S.A. 2001 Supp. 74-4927f is hereby amended to read as
follows: 74-4927f. (a) For the purposes of providing the ``insured death
benefit'' as prescribed in K.S.A. 74-4927 and amendments thereto, to all
persons who are members of the retirement system for judges, the term
``member'' as used in K.S.A. 74-4927 and amendments thereto, and as
used in this section shall include members of the retirement system for
judges.

      (b) Except as otherwise provided by this subsection, the employer of
any member who is a member of the retirement system for judges shall
pay to the Kansas public employees retirement system in such manner as
the board of trustees shall prescribe, an amount equal to .4% of the
amount of compensation on which the member's contributions to the
retirement system for judges are based for deposit in the group insurance
reserve of the Kansas public employees retirement fund, in lieu of the
amount required to be paid under subsection (4) of K.S.A. 74-4927 and
amendments thereto. Notwithstanding the provisions of this subsection,
no employer shall pay to the system any amount provided for by this
subsection for deposit in the group insurance reserve fund for the period
commencing on April l, 2000, and ending on December 31, 2001, or for
the period commencing July 1, 2002, and ending on December 31, 2002.

      Sec.  7. K.S.A. 74-4927g is hereby amended to read as follows: 74-
4927g. (1) For the purposes of providing the ``insured death benefit'' and
``long-term disability benefit'' as prescribed in K.S.A. 74-4927, and
amendments thereto, and for the purposes of providing the ``accidental
death benefit'' as prescribed in subsection (2) of K.S.A. 74-4916, and
amendments thereto, to all employees employed by the state board of
regents or by educational institutions under the state board of regents
who are fulfilling the two-year service requirement under subsection (a)
of K.S.A. 74-4925, and amendments thereto, on and after the first day of
the first payroll period of the fiscal year ending June 30, 1985, the term
``member'' as used in subsection (2) of K.S.A. 74-4916, and amendments
thereto, and K.S.A. 74-4927a, and amendments thereto, and as used in
this section, shall include the aforementioned employees.

      (2) The employer of any member shall pay to the Kansas public em-
ployees retirement system in such manner as the board of trustees shall
prescribe, beginning with the first day of the first payroll period of the
fiscal year ending June 30, 1985, and each payroll period thereafter, an
amount sufficient to pay the amount of the employer's contribution at-
tributable to the accidental death benefit as prescribed in subsection (2)
of K.S.A. 74-4916, and amendments thereto, and an amount sufficient to
pay the employer's contribution to the group insurance reserve as pro-
vided in subsection (4) of K.S.A. 74-4927, and amendments thereto.

      (3) The employer of any member shall maintain a file of the benefi-
ciaries named by the persons covered under this section in the form and
manner as prescribed by the board of trustees.

      (4) Coverage under the plan of death and long-term disability ben-
efits shall begin with the first day of the first payroll period of the fiscal
year ending June 30, 1985, for such member and other persons as defined
in this section.

      Sec.  8. K.S.A. 2001 Supp. 74-4966 is hereby amended to read as
follows: 74-4966. (a) In the case of any member whose employment shall
be covered by social security and who is a member of the class certified
in the case of Brazelton v. Kansas public employees retirement system,
227 K. 443, 607 P.2d 510 (1980), any benefits payable under the provi-
sions of K.S.A. 74-4958, 74-4959 and 74-4960, and amendments thereto,
shall be reduced by an amount equal to 1/2 of the original social security
benefits accruing from employment with the participating employer at
the time the member retired. The actuarial calculation of such benefit
and the social security reduction shall include an assumption that the
member first commences receiving such member's benefit payments pur-
suant to social security at the age such member is first eligible for unred-
uced social security benefits or such member's actual retirement age,
whichever occurs later. For any member already retired on the effective
date of this act, no reduction of the original social security benefits shall
be applicable to benefits paid prior to the effective date of this act. The
member must make an initial application for social security benefits from
employment with the participating employer and, if denied such benefits,
the member must pursue and exhaust all administrative remedies of the
social security administration which include, but are not limited to, re-
consideration and hearings. Until such initial application for benefits has
been approved by the social security administration, social security ben-
efits may be estimated and may be deducted from the amount of any
benefits payable as provided in this subsection.

      (b) For any member other than a member who is a member of the
class certified in the case of Brazelton v. Kansas public employees retire-
ment system, 227 K. 443, 607 P.2d 510 (1980), no benefits shall be re-
duced because of social security benefits. Any benefits which first become
payable on or after January 1, 1976, by reason of employment with a
participating employer participating in the Kansas police and firemen's
retirement system, which employment was also covered by social security,
shall be reduced by an amount equal to the value of the difference be-
tween contributions actually made by the member and contributions
which would have been made had there been no reduction for contri-
butions to social security. The amount of reduction shall be made by the
board upon the advice of the actuary at the time benefits become payable
and shall continue until benefits are no longer payable. Should a member,
whose employment prior to January 1, 1976, with a participating employer
participating in the Kansas police and firemen's retirement system, such
employment also being covered by social security, repay in a lump-sum
prior to January 1, 1977, or on date of retirement, whichever is earlier,
an amount equal to the difference between contributions actually made
by the member and contributions which would have been made had there
been no reduction for contributions to social security, there shall be no
reduction as heretofore provided. If the payment is made after January
1, 1977, but prior to retirement, the member will pay the actual amount
plus interest which shall accrue from January 1, 1976, at a rate specified
by the board of trustees.

      Sec.  9. K.S.A. 2001 Supp. 74-49,123 is hereby amended to read as
follows: 74-49,123. (a) This section applies to the Kansas public employ-
ees retirement system and to all other public retirement plans adminis-
tered by the board of trustees.

      (b) As used in this section:

      (1) ``Federal internal revenue code'' means the federal internal rev-
enue code of 1954 or 1986, as amended and as applicable to a govern-
mental plan as in effect on July 1, 1998; and

      (2) ``retirement plan'' includes the Kansas public employees retire-
ment system and all other Kansas public retirement plans and benefit
structures, which are administered by the board.

      (c) In addition to the federal internal revenue code provisions oth-
erwise noted in each retirement plan's law, and in order to satisfy the
applicable requirements under the federal internal revenue code, the
retirement plans shall be subject to the following provisions, notwith-
standing any other provision of the retirement plan's law:

      (1) The board shall distribute the corpus and income of the retire-
ment plan to the members and their beneficiaries in accordance with the
retirement plan's law. At no time prior to the satisfaction of all liabilities
with respect to members and their beneficiaries shall any part of the
corpus and income be used for, or diverted to, purposes other than the
exclusive benefit of the members and their beneficiaries.

      (2) Forfeitures arising from severance of employment, death or for
any other reason may not be applied to increase the benefits any member
would otherwise receive under the retirement plan's law. However, for-
feitures may be used to reduce an employer's contribution.

      (3) All benefits paid from the retirement plan shall be distributed in
accordance with the requirements of section 401(a)(9) of the federal in-
ternal revenue code and the regulations under that section. In order to
meet these requirements, the retirement plan shall be administered in
accordance with the following provisions: (A) Distribution of a member's
benefit must begin by the later of the April 1 following the calendar year
in which a participant attains age 701/2 or the April 1 of the year following
the calendar year in which the member retires;

      (B) the life expectancy of a member or the member's spouse may not
be recalculated after the benefits commence;

      (C) if a member dies before the distribution of the member's benefits
has begun, distributions to beneficiaries must begin no later than Decem-
ber 31 of the calendar year immediately following the calendar year in
which the member died, except as provided in subsection (6) of K.S.A.
74-4918 and amendments thereto; and

      (D) the amount of benefits payable to a member's beneficiary may
not exceed the maximum determined under the incidental death benefit
requirement of the federal internal revenue code.

      (4) Distributions from the retirement plans may be made only upon
retirement, separation from service, disability or death.

      (5) The board or its designee may not:

      (A) determine eligibility for benefits;

      (B) compute rates of contribution; or

      (C) compute benefits of members or beneficiaries, in a manner that
discriminates in favor of members who are considered officers, supervi-
sors or highly compensated, as prohibited under section 401(a)(4) of the
federal internal revenue code.

      (6) Subject to the provisions of this subsection, benefits paid from,
and employee contributions made to, the retirement plans shall not ex-
ceed the maximum benefits and the maximum annual additions, respec-
tively, permissible under section 415 of the federal internal revenue code.

      (A) Beginning January 1, 1995, a participant may not receive an an-
nual benefit that exceeds the dollar amount specified in section
415(b)(1)(A) of the federal internal revenue code, subject to the appli-
cable adjustments in section 415 of the federal internal revenue code,
except as provided in clause (C) of this subsection.

      (B) Notwithstanding any other provision of law to the contrary, the
board may modify a request by a participant to make a contribution to
the retirement plans if the amount of the contribution would exceed the
limits under section 415(c) or 415(n) of the federal internal revenue code
subject to the following:

      (i) Where the retirement plan's law requires a lump-sum payment,
for the purchase of service credit, the board may establish a periodic
payment plan in order to avoid a contribution in excess of the limits under
section 415(c) or 415(n) of the federal internal revenue code.

      (ii) An eligible participant in a retirement plan, as defined by section
1526 of the federal taxpayer relief act of 1997, may purchase service credit
without regard to the limitations of section 415 (c)(1) of the federal in-
ternal revenue code as provided by state law in effect on August 5, 1997.

      If the board's option under subdivision (i) will not avoid a contribution
in excess of the limits under section 415(c) or 415(n) of the federal in-
ternal revenue code, the board shall reduce or deny the contribution.

      (C) Subject to approval by the internal revenue service, the board
shall maintain a qualified governmental excess benefit arrangement under
section 415(m) of the federal internal revenue code. The board shall es-
tablish the necessary and appropriate procedures for the administration
of such benefit arrangement under the federal internal revenue code.
The amount of any annual benefit that would exceed the limitations im-
posed by section 415 of the federal internal revenue code shall be paid
from this benefit arrangement. The amount of any contribution that
would exceed the limitations imposed by section 415 of the federal in-
ternal revenue code shall be credited to this benefit arrangement. The
qualified excess benefit arrangement shall be a separate portion of the
retirement plan. The qualified excess benefit arrangement is subject to
the following requirements:

      (i) The benefit arrangement shall be maintained solely for the pur-
pose of providing to participants in the retirement plans that part of the
participant's annual benefit otherwise payable under the terms of the act
that exceeds the limitations on benefits imposed by section 415 of the
federal internal revenue code; and

      (ii) participants do not have an election, directly or indirectly, to defer
compensation to the excess benefit arrangement.

      (D) Prior to January 1, 1998, the definition of compensation, wages,
salary or other similar term when used for purposes of determining com-
pliance with section 415 of the federal internal revenue code does not
include the amount of any elective deferral, as defined in section
402(g)(3) of the federal internal revenue code, or any contribution which
is contributed or deferred by the employer at the election of the employee
and which is not includable in the gross income of the employee by reason
of section 125 or 457 of the federal internal revenue code.

      (7) The board may not engage in a transaction prohibited by section
503(b) of the federal internal revenue code.

      (8) To the extent required by section 401(a)(31) of the federal inter-
nal revenue code, the board shall allow members and qualified benefi-
ciaries to elect a direct rollover of eligible distributions to another eligible
retirement plan. Notwithstanding any law to the contrary, the board may
accept a direct or indirect rollover of eligible distributions for the purpose
of the purchase of service credit. In addition, the board may accept a
direct trustee to trustee transfer from a deferred compensation plan under
section 457(b) of the federal internal revenue code or a tax sheltered an-
nuity under section 403(b) of the federal internal revenue code for: (A)
The purchase of permissive service credit, as defined under section
415(n)(3)(A) of the federal internal revenue code; or (B) a repayment to
which section 415 of the federal internal revenue code does not apply
pursuant to section 415(k)(3) of the federal internal revenue code. Any
such transfer shall be allowed as provided in this subsection to the extent
permitted by law, subject to any conditions, proofs or acceptance estab-
lished or required by the board or the board's designee.

      (9) Where required by the act, an employer shall pick up and pay
contributions that would otherwise be payable by members of a retire-
ment plan in accordance with section 414(h)(2) of the federal internal
revenue code as follows:

      (A) The contributions, although designated as employee contribu-
tions, are being paid by the employer in lieu of contributions by the
employee;

      (B) the employee must not have been given the option of receiving
the amounts directly instead of having them paid to the retirement plan;
and

      (C) the pickup shall apply to amounts that a member elects to con-
tribute to receive credit for prior or participating service if the election
is irrevocable and applies to amounts contributed before retirement.

      (10) Notwithstanding any provision of this plan to the contrary, con-
tributions, benefits and service credit with respect to qualified military
service will be provided in accordance with section 414(u) of the federal
internal revenue code.

      (11) Upon the complete or partial termination of a retirement plan,
the rights of members to benefits accrued to the date of termination, to
the extent funded, or to the amounts in their accounts are nonforfeitable,
and amounts in their accounts may be distributed to them.

      (d) The plan year for the retirement plan begins on July 1.

      (e) The limitation year for purposes of section 415 of the federal
internal revenue code is the calendar year.

      Sec.  10. K.S.A. 75-5524 is hereby amended to read as follows: 75-
5524. (a) The director is authorized to enter into a voluntary agreement
with any employee whereby the director agrees to defer and deduct each
payroll period a portion of the employee's salary or compensation from
the state in accordance with the Kansas public employees deferred com-
pensation plan. Such agreement may require each participant to pay a
service charge to defray all or part of any significant costs incurred and
to be recovered by the state pursuant to subsection (c) of K.S.A. 75-5523,
and amendments thereto, as a result of the administration of this act.
Pursuant to this act and such agreements the director is authorized to
deduct amounts authorized in such agreements from the salary or com-
pensation of such employee each payroll period, as part of the system of
regular payroll deduction. On and after July 1, 2002, pursuant to section
401(a) of the federal internal revenue code, the director may establish a
qualified plan under which the state may contribute a specified amount,
subject to appropriations, to the deferred compensation plan for state
employees who have entered into a voluntary agreement with the director
under this section.

      (b) The minimum amount and the maximum amount which may be
deferred in any one payroll period shall be established by rules and reg-
ulations adopted under K.S.A. 75-5529, and amendments thereto.

      (c) The Kansas public employees deferred compensation plan shall
exist and be in addition to, and shall not be a part of any retirement or
pension system for employees. The state shall not be responsible for any
loss incurred by an employee under the Kansas public employees de-
ferred compensation plan established and approved pursuant to this act.

      (d) Any amount of the employee's salary or compensation that is de-
ferred under such authorized agreement shall continue to be included as
regular compensation for all purposes of computing retirement and pen-
sion benefits earned by any such employee, but any sum deferred or
deducted shall not be subject to any state or local income taxes for the
year in which such sum is earned but shall be subject to applicable state
and local income taxes for the year in which such sum is received by the
employee.

      (e) The director is hereby authorized to establish a deferred com-
pensation clearing fund in the state treasury in which shall be placed
temporarily all compensation deferred and, deducted or contributed in
accordance with this act, as provided for in any agreement between an
employee and the director.

 Sec.  11. K.S.A. 72-8603, 74-4927g and 75-5524 and K.S.A. 2001
Supp. 74-4902, 74-4919m, 74-4919t, 74-4927, 74-4927b, 74-4927f, 74-
4966 and 74-49,123 are hereby repealed.

 Sec.  12. This act shall take effect and be in force from and after its
publication in the Kansas register.

Approved May 16, 2002.
 Published in the Kansas Register May 23, 2002.
__________