Brief⁽¹⁾

Senate Sub. for H.B. 2149 includes the Senate recommendations for the 1998 Kansas Public Employees Retirement System (KPERS) omnibus bill. The bill would grant a permanent, post-retirement benefit increase of 2.0 percent for any person retired before July 1, 1993. State General Fund financing of $18.9 million would be appropriated in this bill to pay for a portion of the state's costs for the COLA. The bill also would modify a number of KPERS statutes and would add other provisions as described in the following items.

Criminal Penalty. The provisions passed by the Senate as S.B. 618 are also included in this bill and would add a criminal penalty for making false statements pertaining to KPERS matters. The proposed change would delete references to "misdemeanor" and "$500," and would substitute language providing that such a person is "subject to the provisions of K.S.A. 21-3904" which is the criminal code section governing the presenting of a false claim. K.S.A. 21-3904 defines presenting a false claim as knowingly and with intent to defraud, presenting a false claim or demand to a public officer or body authorized to pay such claim, and provides a graduated level of severity depending upon the dollar amount of the fraud. Current law provides that a person who knowingly makes a false statement for the purpose of committing fraud shall be guilty of a misdemeanor and upon conviction subject to a fine of up to $500.

Restriction Rescinded. This provision would allow pre-July 1, 1995, members participating in a KPERS administered plan who wish to retire under one system, and to continue working under a second system administered by KPERS, to seek administrative relief from the KPERS Board of Trustees. Current law passed in 1995 requires that if a person uses credit from one plan in order to retire under a different plan, then the person must retire from both plans in order to collect retirement benefits. KPERS staff estimates that 546 individuals could be affected by the issue of retiring under two systems, but that most active employees (80 percent) would not be involved in the fiscal consequences. An estimated 126 of those presently working under one plan (regular KPERS) and inactive under another plan (KP&F) could be affected.

Based on this amendment, notwithstanding provisions of K.S.A. 74-4988, and not earlier than six months prior to attaining eligibility for retirement under a plan administered by the Kansas Public Retirement System (KPERS) in which a person became an inactive member prior to July 1, 1995, any active member participating in another plan administered by KPERS may apply to the System's Board of Trustees for retirement under the plan in which the member is inactive. The Board of Trustees shall establish procedures and criteria to determine whether an individual member has been adversely impacted financially by 1995 amendments to K.S.A. 74-4988. If upon determination that a member has suffered significant financial disadvantages due to 1995 changes in K.S.A. 74-4988, then the Board of Trustees may grant the individual's application for retirement under the inactive plan and the individual may elect to continue working and accruing service credit under another plan without having to retire from the active membership plan. In such a case, the provisions of K.S.A. 74-4988 shall not apply after the Board of Trustees has certified that a member is adversely affected financially if required to retire simultaneously from both plans.

Technical Amendments. The following provisions requested by the KPERS Board of Trustees originally were included in S.B. 620, which was recommended for introduction by the Joint Committee on Pensions, Investments and Benefits to include these items. Fiscal Note: There is no administrative impact noted by KPERS.

• provide regulatory authority for the Judges' Retirement System;



• clarify the definition of a KPERS employee;



• clarify an elected official's membership date;



• address returning from military service;



• provide for rebuttable presumption under KP&F for disability benefits;



• allow the crediting of one-for-two KP&F prior nonservice work;



• distinguish between a disabled and active KP&F member;



• allow use of a workers' compensation report in determining a disability for KP&F; and



• clarify references to KPERS Act and the definition of Act.

Enhanced Service Credit. The provision would provide that any KPERS member who was a court reporter working for a Magistrate Judge prior to July 1, 1975, and was a full-time court reporter on July 1, 1998, would be granted benefits under provisions of the old Court Reporter Retirement System upon retirement. This item originally was introduced in S.B. 627. Fiscal Note: The KPERS actuary indicates a negligible actuarial cost because so few people would be eligible. No administrative costs are cited.

Eliminate Investment Restrictions. The bill would remove three real estate restrictions on KPERS investments. The KPERS Board requested the bill to eliminate certain of the investment constraints, specifically ones that apply to real estate investments. These constraints include requirements in K.S.A. 74-4921, section (5)(c)(i - viii) that the System:

• own no more than a 20 percent interest in any new investments;

• participate in new investments only if two other sophisticated co-investors also invest; and



• take positions in commingled funds only to the extent that they do not individually exceed 20 percent of the total real estate portfolio.

These provisions originally were included in H.B. 2542. Fiscal Note: No administrative costs for KPERS are indicated in the fiscal note.

Assignment of Space. This amendment would eliminate assignment of KPERS' office location in the Capitol Complex by the Secretary of Administration. This provision was introduced as H.B. 2889. Fiscal Note: No impact is indicated by KPERS.

Definition of Public Safety Officers. A provision is included that would define a policeman and fireman. The provision would change the definition of a policeman to require that they be certified by the Kansas Law Enforcement Training Commission which initially requires 320 hours of accredited instruction at the Training Center and 40 hours of instruction annually thereafter. The Senate Committee modified the proposed amendment to clarify that a one-year waiting period would be allowed if a newly hired officer did not receive training for up to 12 months. As firemen currently do not receive the same type of training, their definition is being changed to require that their principal duties are engagement in the fighting and extinguishment of fires. This amendment would not affect anyone who is already a KP&F member. The current definition of "policeman and fireman" in the KP&F statutes, includes a person who is ". . . in support thereof and who is specifically designated, appointed, commissioned or styled as such by the governing body or city manager of the participating employer . . . ." The proposal originally was introduced as H.B. 2890 by the Joint Committee on Pensions, Investments and Benefits. Fiscal Note: No actuarial impact or administrative costs are cited by KPERS.

Final Average Salary. This provision would establish a statutory basis for determining the final average salary to be used when computing KPERS retirement benefits for Regents unclassified personnel who presently are covered by a defined contribution plan implemented by the Board of Regents, but who previously had service recognized under KPERS. Fiscal Note: The item should reflect any cost to be added to the end of the plan period which is scheduled currently to pay off the unfunded actuarial liability by 2004. Estimated actuarial cost is $6.4 million in 2005. KPERS estimates that 334 people have been identified in this group who currently are working under the Regents defined contribution plan and who also have service under KPERS. Since the Regents institutions already budget an annual amount for paying the KPERS assessment, no additional funding will be required. Any reallocation within Regents budgets of this funding or the elimination of this KPERS assessment funding, that originally could have occurred in 2004, would be delayed for one year if this funding provision is implemented.

EFT Remittances. KPERS requested legislation to amend current law regarding the timing of employer and employee contribution remittances by electronic funds transfers (EFT) and improving the timely remittance by participating employers of contributions. The Senate Committee clarified that the amendment would require all participating employers to remit electronically regardless of present requirements that some units of government pay only by warrant. Fiscal Note: No administrative costs were noted by KPERS.

30-Day Waiting Period. A provision would be amended into current KPERS law providing that after separation from a participating employer, an employee must wait at least 30 days either for withdrawing retirement contributions or for working after retirement for the same participating employer. This item is considered a trailer amendment for S.B. 362 that passed the Senate earlier in the 1998 Session. Fiscal Note: No administrative costs were noted by KPERS.

COLA Provision. The Senate Committee recommends inclusion in the KPERS Omnibus bill of an ad hoc 2.0 percent cost-of-living adjustment for all persons who retired prior to July 1, 1993. This COLA is permanent in the sense that it increases the base monthly retirement benefit payment by 2.0 percent and continues throughout the lifetime of the member, as well as any beneficiary that shares in the member's benefit. The Committee recommends that a portion of the state's actuarial costs be paid in FY 1999 since the increase in benefits would be effective on July 1, 1998. Currently, the average KPERS monthly benefit payment for the pre-1993 group is approximately $547, and a 2.0 percent COLA would provide an average increase of $11 per month.

Fiscal Note: The actuarial liability, or one-time costs, for this proposal is $37.5 million. The total state cost is estimated at $27.6 million all funds. The total local cost would be $9.8 million. State financing would be apportioned between the State General Fund (SGF) and the System's unfunded liability as follows: An appropriation of $18,895,173 SGF would pay the actuarial cost of the KPERS School, KPERS TIAA, KP&F State, and Judges plans. The regular KPERS State portion of $8,724,362 would be added to the System's unfunded liability, which, for the KPERS State portion is overfunded by $127 million as of June 30, 1997. Under this Senate Committee proposal, the liability would be paid by the state over 15 years. The financing of $9.8 million for KPERS and KP&F also would be added to the local units' liability and paid over a period of 15 years in order to reduce the potential adverse impact on local units of making a single lump-sum payment, or, alternatively, having the state pay this local cost.

Background

The Senate Ways and Means Subcommittee on KPERS issues held its public hearing on February 25, 1998, and heard testimony from ten conferees. Specific testimony advocated S.B. 475, S.B. 617, and S.B. 627. Five conferees spoke in support of a cost-of-living adjustment, such as recommended by the Joint Committee on Pensions, Investments and Benefits. The Senate Ways and Means Committee approved the Subcommittee Report, including a 2.0 percent ad hoc COLA. Using the cut-off date of July 1, 1993, reduces the cost of a COLA approximately 50 percent compared to using July 1, 1997, as the cut-off date. Based on 1993 KPERS legislation, members retiring after July 1, 1993, received a 25.0 percent increase in the KPERS multiplier that calculates retirement pay, and those persons who retired prior to July 1, 1993, received an average COLA of 14.5 percent. The Senate Ways and Means Committee COLA addresses the latter group of retirees who retired under a lower multiplier than those retiring since the 1993 enhancements. There are 34,223 pre-1993 retirees who receive an average benefit of $547 per month.

No provisions in this bill have any administrative costs indicated by KPERS.

The fiscal note for the COLA is expressed in terms of an increase in actuarial liability, which is estimated at $37.5 million by the KPERS actuary in order to pay for a permanent increase in the monthly base retirement benefit of all members who retired prior to July 1, 1993. The KPERS actuary reports that the increased actuarial liabilities and the corresponding increase in employer contribution rates for the state and local units to pay off the costs over 15 years is: KPERS-State, $18.1 million (0.11 percent); KPERS-Local, $10.3 million (0.06 percent); KP&F-Local, $11.3 million (0.24 percent). The local units would begin paying costs in calendar year 2000 and the state in FY 2000 (July 1, 1999). The increase in actuarial liability is offset (reduced) by an appropriation of $18.9 million from the State General Fund to pay in advance for KPERS-School, KPERS-TIAA, KP&F-State, and Judges plans. Total employer contributions to pay for this COLA using this finance method will total $58.6 million over 15 years.

Two other provisions in the bill have actuarial fiscal notes. The unfunded liability of regular KPERS would be increased by an estimated $10-$12 million for one item and by $6.4 million for the other item. The actuarial liability of the first item would be absorbed by the System in regards to the cost associated with retiring under two plans and the actuarial liability of the latter would be paid by the Regents institutions in 2005 under provisions relative to final average salary in the bill.

2% -- Retirants before July 1, 1993

State's amortization -- 15 years

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.