SESSION OF 2025
SUPPLEMENTAL NOTE ON HOUSE BILL NO. 2086
As Recommended by House Committee on
Financial Institutions and Pensions
Brief*
HB 2086 would increase the Kansas Public Employee
Retirement System (KPERS) Tier 3 discretionary dividend
credit from 75 percent of the five-year average net compound
rate of return to 80 percent. The bill would also reduce the
discretionary dividend credit threshold from 6 percent to 5
percent of the five-year average net compound rate.
The bill would also make technical amendments to
remove outdated language.
Background
The bill was introduced by the House Committee on
Financial Institutions and Pensions at the request of
Representative Hoheisel.
House Committee on Financial Institutions and Pensions
In the House Committee hearing, proponent testimony
was provided by a representative of the Kansas National
Education Association. The proponent generally stated the bill
would help recruit and retain Kansas public school teachers.
Neutral testimony was provided by a representative of
KPERS generally stating the bill’s effect on members’ benefits
and the system’s fiscal position. Additional neutral testimony
____________________
*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
https://klrd.gov/ was provided by a representative of the Kansas Peace
Officers Association generally stating that KPERS Tier 3
needs to be improved.
Written-only neutral testimony was provided by
representatives of Keeping the Kansas Promise.
No other testimony was provided.
Fiscal Information
According to the fiscal note prepared by the Division of
the Budget (DOB) on the bill, KPERS indicates that
enactment of the bill would have a negligible effect on the
agency’s operations. KPERS publications would have to be
updated, but the agency reports that no additional staffing or
information technology development would be required and
could be implemented with the agency’s current submitted
budget for FY 2025 and FY 2026.
The enactment of the bill would provide increased
retirement benefits for KPERS Tier 3 members. As of
December 31, 2023, a total of 79,886 members of the
State/School Group and the Local Group would receive this
benefit enhancement, as well as all new members entering
the Tier 3 Plan. The proposed changes would increase the
overall funding risk to KPERS, as higher employer
contributions would be needed over time to finance the higher
benefits.
Although each individual KPERS Tier 3 retiree’s
situation would be different depending on many variables,
KPERS has illustrated what the benefit increase may be for a
career employee with 30 years of service. If this individual
would retire making an annual salary of $60,000, the bill
would increase the replacement income ratio from 33.2
percent to 36.5 percent. Under current law, this KPERS Tier 3
member employee would receive approximately $19,920
annually from KPERS for retirement benefits. The bill would
2- 2086 increase this yearly amount by $1,980 to $21,900, an
increase of 9.9 percent.
For the State/School Group, the KPERS actuary
indicates the bill would increase the KPERS unfunded
actuarial liability (UAL) by $102.1 million. With current law,
any benefit enhancement is required to be reflected in the
fiscal year immediately following the enactment of the
change. As a result, the State could either: (1) make an up
front payment to KPERS from the State General Fund totaling
$102.1 million, likely from the State General Fund, to pay for
the cost; or (2) pay for the increased costs through increased
employer contributions for the UAL. With the second option,
the State’s employer contributions (excluding death and
disability contributions) would increase by 0.48 percent, going
from 11.68 percent to 12.16 percent in FY 2026. This
increase is estimated to cost $27.0 million from all funding
sources for FY 2026. The DOB notes that using an estimate
of approximately 85.0 percent of the State/School Group’s
employer contributions being paid from the State General
Fund, this would result in additional expenditures of $23.0
million from the State General Fund statewide for employer
KPERS contributions, including KPERS-School payments.
KPERS notes that if the State would make the upfront
UAL payment, the State would still incur an increase in
KPERS employer contribution rate of 0.35 percent for the
cost of the increased benefit. KPERS estimates that this
would increase expenditures by $19.8 million from all funding
sources, with $16.8 million from the State General Fund,
using the DOB payroll funding split estimate. Any fiscal effect
associated with the bill is not reflected in The FY 2026
Governor’s Budget Report.
For the Local Group, KPERS indicates the bill would
increase the UAL by $43.7 million. However, unlike the
State/School Group, there is no mechanism to pay for the
increase in the UAL up front by local employers. As a result,
Local Group employers would experience an employer
contribution rate increase during calendar year 2026 of 0.58
3- 2086 percent, going from 9.59 percent to 10.17 percent. This
increase would cost local employers an estimated $12.9
million among approximately 1,400 Local Group KPERS
employers. If the state would make the UAL payment up front
for the Local Group, the employer contribution would increase
by 0.41 percent in calendar year 2026 for the cost of the
benefit increase, or approximately $9.1 million.
Retirement System; KPERS; Tier 3; investment return threshold; dividend; dividend
interest credit
4- 2086