Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 adam.c.proffitt@ks.gov
Topeka, KS 66612 http://budget.kansas.gov
Adam Proffitt, Director Laura Kelly, Governor
Division of the Budget
February 20, 2023
The Honorable Nick Hoheisel, Chairperson
House Committee on Financial Institutions and Pensions
300 SW 10th Avenue, Room 582-N
Topeka, Kansas 66612
Dear Representative Hoheisel:
SUBJECT: Fiscal Note for HB 2196 by House Committee on Financial Institutions and
Pensions
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2196 is
respectfully submitted to your committee.
A Deferred Retirement Option Plan (DROP) is a retirement plan design feature where an
individual member initiates the calculation of a retirement benefit, but opts to defer actual receipt
of the benefit for a specific period. During the specified DROP period, the member would continue
working and the member’s benefit would be credited to a notational account and made available
in a lump sum when the member ultimately retired. In the current pilot KPERS Kansas Police and
Firemen (KP&F) DROP plan, members and employers continue making regular contributions to
the retirement system. The current pilot program has a sunset date of January 1, 2025, and allows
the troopers at the Kansas Highway Patrol and agents at the Kansas Bureau of Investigation to
participate.
HB 2196 would expand the current KPERS pilot DROP to all KP&F retirement system
members. However, this expansion would require participating employers to approve participation
so that individual employees would have the option to participate in DROP. The bill would keep
the DROP sunset date of January 1, 2025.
With the enactment of HB 2196, costs for the KPERS KP&F retirement system would be
dependent upon member behavior. If a member entered the DROP when planning to retire and
ultimately worked longer, the costs would be relatively low. However, if a member entered the
DROP earlier and ultimately retired when the member would have without the drop, there is a
higher cost associated with the program. KPERS notes that some pension plans are designed with
benefit caps, and it can be easy for a member to know the most advantageous time to enter the The Honorable Nick Hoheisel, Chairperson
Page 2—HB 2196
DROP. However, KPERS indicates that it currently takes 36 years to reach the KP&F benefit cap
and most KP&F members do not work that long. Because of this, KPERS indicates that it would
be difficult for a member to know the most advantageous time to enter the DROP.
KPERS notes that the current pilot DROP has been in place since 2015 and only 31 KP&F
members have utilized the program. As a result, the data is not yet sufficient to set an actuarial
assumption with much of a confidence interval. The KPERS actuary did make a cost projection
using three difference scenarios for the scope of the potential costs of HB 2196:
1. Members would enter the DROP early, but still retire as anticipated (a medium-cost
approach);
2. Members would enter the DROP early, but retire earlier than anticipated (a high-cost
approach); and
3. Members would enter the DROP when they had anticipated to retire and work longer with
the DROP option (a low-cost approach).
For all three scenarios, to estimate a potential fiscal effect, the KPERS actuary used data
from the December 31, 2021, actuarial valuation. Normally, any benefit change during the current
legislative session would result in a recertification of the next year’s employer contribution, as
required in KSA 74-4920; however, since the fiscal effect cannot be estimated, there would be no
change to certified KPERS rates in FY 2024 or FY 2025 with the enactment of HB 2196. The
employer contribution rates in the scenarios below are for FY 2025, as the December 31, 2021,
actuarial valuation would set the FY 2025 KPERS rates. The agency notes that the fiscal effect
would be similar in FY 2024.
With scenario 1, the actuary projects an employer contribution rate increase from 23.10
percent to 23.50 percent, an increase of 0.40 percent or $2.3 million on a $579.0 million total
KP&F state and local payroll base. With scenario 2, the actuary projects an employer contribution
increase from 23.10 to 24.11 percent, an increase of 1.01 percent or $5.8 million on a $579.0
million total KP&F state and local payroll base. With scenario 3, the actuary projects a decrease
in the employer contribution rate from 23.10 percent to 22.86 percent, a decrease of 0.24 percent
or $1.4 million on a $579.0 million total KP&F state and local payroll base.
KPERS notes that while it is not possible to reliably project the future cost of the enactment
of HB 2196, any future experience that would be caused by the expansion would ultimately be
reflected in future KP&F employer contribution rates. As required by current law, all KP&F
employers are required to pay the full actuarial required contribution rate each year, unlike the
regular KPERS rate. Any rate changes would be spread across all 112 KP&F employers. While
each employer would have the option to participate in the DROP, each employer would be required
to pay the full employer contribution rate. The actual additional cost that would be required by
the state and local employers would ultimately depend on the number of members who choose to
participate in the DROP, as well as the retirement behavior of those members.
The Honorable Nick Hoheisel, Chairperson
Page 3—HB 2196
For administrative costs, KPERS indicates that expanding DROP to all KP&F members
would require additional expenditures totaling $166,421 in FY 2024, including 1.00 FTE Benefit
Analyst II position ($75,478, including fringe benefits) and 1.00 non-FTE unclassified temporary
Benefits Analyst I position ($70,943, including fringe benefits). Included in this estimate is
$20,000 for changes to KPERS information technology systems. KPERS notes that the Benefits
Analyst I position would be a limited-time position to assist with enrollment, tracking, and
education activities for members and employers. Any fiscal effect associated with HB 2196 is not
reflected in The FY 2024 Governor’s Budget Report.
Sincerely,
Adam Proffitt
Director of the Budget
cc: Jarod Waltner, KPERS