SESSION OF 2023
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2196
As Recommended by House Committee on
Financial Institutions and Pensions
Brief*
HB 2196 would expand the defined membership of the
Deferred Retirement Option Program (DROP) to include any
member of the Kansas Police and Firemen’s Retirement
System (KP&F) who is eligible to participate and elects to
participate in DROP. Under current law, a DROP participant
can only include a trooper, examiner, or officer of the Kansas
Highway Patrol (KHP) or an agent of the Kansas Bureau of
Investigation (KBI).
Background
Established in 2015, DROP was created to offer a
deferred retirement option to eligible KP&F members with the
KHP. On January 1, 2020, this program was expanded to
include agents of the KBI (2019 HB 2031). Eligible members
who opt to participate in the DROP do not earn additional
service credit, cannot choose a partial lump sum retirement
option, and the individual’s election to participate is
irrevocable. Members may opt to participate for three, four, or
five years. The member’s employer must also agree to the
member’s participation in DROP. Under current law, DROP is
a pilot program and will sunset January 1, 2025.
HB 2196 was introduced by the House Committee on
Financial Institutions and Pensions at the request of
Representative Xu.
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*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.kslegislature.org House Committee on Financial Institutions and Pensions
In the House Committee hearing, proponent testimony
was provided by representatives of the Fraternal Order of
Police Lodge #3 (Topeka Police; Shawnee County Sheriffs);
the Kansas Association of Chiefs of Police, Kansas Sheriffs
Association, and the Kansas Peace Officers Association; and
the Kansas State Council of Firefighters. Written-only
proponent testimony was provided by the Chief of Police for
the City of Bel Aire and fire captain with the Olathe Fire
Department. Proponents noted concerns with agency
vacancy rates, compounded by increasing retirements and
loss of more senior staff paired with declining numbers of law
enforcement academy graduates. Retaining more senior
personnel would also ensure proper supervision and
guidance throughout the public safety agencies.
Neutral information was provided by the Executive
Director of the Kansas Public Employees Retirement System
(KPERS), which outlined the DROP plan design,
requirements in current law, present DROP participation,
potential costs of individuals’ DROP elections, and
administrative costs. In terms of participation, between July 1,
2015, and December 31, 2022, the conferee reported that 67
out of 550 KP&F members from the KHP or the KBI elected
to participate in DROP. As of December 31, 2022, 18
members have completed their DROP period or opted to
leave DROP and retire.
Fiscal Information
According to the fiscal note prepared by the Division of
the Budget on the bill, KPERS states KP&F retirement
system costs associated with enactment of the bill 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
2- 2196 member would have without the DROP, there is a higher cost
associated with the program.
Cost projections. The KPERS actuary provided cost
projections using three difference scenarios (low- to high-
cost) for the scope of the potential costs of the bill:
●Scenario 1. Members would enter the DROP early,
but still retire as anticipated (a medium-cost
approach);
●Scenario 2. Members would enter the DROP early,
but retire earlier than anticipated (a high-cost
approach); and
●Scenario 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 (pursuant to 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 the bill. 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. KPERS 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, which is an increase of 0.40 percentage points 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,
which is an increase of 1.01 percentage points, or $5.8 million
on a $579.0 million total KP&F state and local payroll base.
3- 2196 With scenario 3, the actuary projects a decrease in the
employer contribution rate from 23.10 percent to 22.86
percent, which is a decrease of 0.24 percentage points or
$1.4 million on a $579.0 million total KP&F state and local
payroll base.
Future costs. KPERS notes that while it is not possible
to reliably project the future cost of the enactment of the bill,
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.
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 the bill is not reflected
in The FY 2024 Governor’s Budget Report.
Retirement System; KP&F employers; DROP
4- 2196