Brief ⁽¹⁾

SB 645, as amended, would reduce temporarily the contribution rates for certain specified participating employers that make payments for retirement and insurance benefit programs administered by the Kansas Public Employees Retirement System (KPERS). In addition, the bill would authorize a 13^th check to be paid in FY 2001 to all eligible KPERS retirees. The anticipated value of the one-time bonus payment would be equal to 50 percent of an eligible retiree's or beneficiary's monthly KPERS retirement benefit. In order to be eligible for the 13^th check, retirement must have been started prior to July 1, 1999.

SB 645 would place a five-quarter moratorium from April 1, 2000, until June 30, 2001, on employer-paid insurance contributions to the KPERS Group Insurance Reserve Fund. The bill would eliminate for five quarters the statutory requirement of making the required 0.6 percent contribution that all KPERS participating employers pay on behalf of active employees covered by the KPERS death and long-term disability benefits program. The bill as introduced reflected the Governor's recommendation of a freeze from July 1, 2000, until June 30, 2001. The Senate Committee amended the bill to include provisions of SB 567 that authorizes a freeze for the last quarter of state FY 2000, starting April 1, 2000. This provision applied to all KPERS participating employers, including the state, local units, and other participating employers.

SB 645 also would freeze during FY 2001 the state's retirement contribution rate for the State and School groups at the FY 2000 rate of 3.59 percent. Under current law, the state's rate was scheduled to increase by 0.39 percent in FY 2001 based on the rate submitted by the KPERS Board of Trustees. This freeze provision applies only to the State of Kansas and its anticipated rate increase for State and School group payments. Local units and other KPERS participating employers are not addressed by the proposed one-year freeze.

The Governor's proposed 13^th check for eligible KPERS retirees and beneficiaries would be financed from the KPERS litigation settlement money to pay for a one-time bonus. The payment date for the 13^th check will be October 1, 2000. In addition, the Senate Committee added a provision about applying the remainder of the litigation settlement money to the KPERS unfunded liability of the state for the 1998 COLA.

Background

SB 645 was introduced in order to implement the Governor's recommended reductions in FY 2001 of employer contributions to the KPERS retirement and insurance programs. The adjustments recommended by the Governor were part of the proposed FY 2001 Governor's Budget Report and the adjustments were recommended to help ensure a 7.5 percent State General Fund ending balance. SB 567 was introduced in order to implement the Legislature's recommended reductions of employer contributions to the KPERS insurance program in the fourth quarter of FY 2000. SB 567 was amended into SB 645 by the Senate Ways and Means Committee.

Conferees who were in opposition to SB 645 included representatives of the Kansas National Education Association and the State Employees Association of Kansas. The Director of the Budget spoke in favor of the bill and offered the suggested amendment from the Governor that proposes a 13^th check for KPERS retirees and suggests that financing would be from the KPERS litigation settlement money. The KPERS Executive Secretary provided background information about the proposed legislation and the fiscal impact on KPERS.

Fiscal Note

KPERS received funds associated with litigation settlements as of March 7, 2000, that totaled $41,525,000, of which $10,267,300 was paid for legal fees and expenses. The net proceed to KPERS was $31,257,601, all of which was deposited into the KPERS Fund. In order to pay for the one-time bonus check, the Governor's recommendation for a 13^th payment that was adopted by the Senate Ways and Means Committee would use approximately $19 million of litigation settlement funds received by KPERS. Based on the most recent period's average benefit to retirants, the average bonus payment would be $386. The remaining amount of the settlements, approximately $12 million, would be applied to reducing the unfunded liability of the state for the 1998 COLA. The Director of the Budget indicated that this money would offset the Governor's proposed freeze in FY 2001 of the employer contribution rate increase scheduled for KPERS State and School payments paid by the State of Kansas.

Omitted from the Governor's recommended 13^th check were payments for disabled KPERS members who traditionally have received bonus payments and most COLAs paid to retirees. The cost of a 13^th check for this group of disabled KPERS members is approximately $1 million based on paying 50 percent of a monthly benefit.

The proposed adjustments to contribution rates for certain specified participating employers that make payments for retirement and insurance benefit programs have a fiscal impact shown in the following table.

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/bill_search.html