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Joint KPERS committee recommends $1 billion extraordinary payment, studies Tier 3 and COLA financing
Summary
A legislative interim committee reviewed KPERS reports, recommended consideration of an extraordinary $1 billion payment, further study of the deferred retirement option program and targeted changes to the Tier 3 (cash‑balance) plan, and urged that any cost‑of‑living changes be financed when enacted to avoid increasing KPERS' unfunded liability.
A joint interim committee that monitors the Kansas Public Employees Retirement System (KPERS) presented its report and recommendations to the Senate Committee on Financial Institutions and Pensions on an interim agenda item, summarizing annual actuarial, investment and program reviews.
The committee, a statutory joint body charged with monitoring KPERS, recommended that the Legislature consider an extraordinary KPERS payment of $1,000,000,000 to continue reducing the system’s unfunded actuarial liability. Assistant Director for Research Eddie Penner said the committee ‘‘recommend[ed] specific legislative consideration’’ of that payment and other measures.
The nut graf: the report covered routine KPERS updates — funded ratio, contribution schedule, investment returns and administration — and flagged three areas for legislative action or further study: (1) potential extraordinary payments to reduce unfunded liabilities; (2) additional review of the deferred retirement option program; and (3) careful, narrowly targeted evaluation of changes to the Tier 3 cash‑balance plan and cost‑of‑living adjustments (COLAs) that must be financed at enactment.
Most immediate figures in the report were actuarial and investment metrics. Penner told the committee KPERS asset values as of Dec. 31, 2023, were about $27.6 billion, producing a funded ratio of roughly 74 percent (up from 73.4 percent the prior year). The report noted scheduled contribution rates for the state and school group would continue at actuarially required levels through FY2027 and showed a slight statutory reduction in the contribution percentage from 11.68% in 2026 to 11.32% in 2027 for that group.
On investment performance, the KPERS trust fund returned 9.7% for fiscal year 2024, exceeding the actuarial assumption of 7% but trailing the policy benchmark of about 11%.
The committee devoted substantial time to Tier 3, a cash‑balance plan distinct from KPERS 1 and 2. Penner summarized the committee’s view that Tier 3 contains several ‘‘levers’’ — design choices that affect benefit outcomes — and urged that any legislative adjustments be ‘‘narrowly tailored’’ rather than blunt reforms that could have unintended consequences. Representatives for the Kansas Coalition of Public Retirees and a combined witness for police and sheriffs’ associations said Tier 3 has created recruitment and retention concerns for some public safety positions, especially dispatchers and jailers.
On COLAs, the committee recommended that standing committees review the fiscal impact of any COLA proposals and ensure those increases be financed at the time of enactment so as not to raise KPERS’ unfunded actuarial liability. Penner said the committee ‘‘recommend[ed] that any changes to [Tier 3] be financed at the time of enactment and not in such a way as to increase the unfunded actuarial liability of the KPERS Trust Fund.’’
Other committee work included routine ‘‘KPERS housekeeping’’: actuarial reports, the status of pension obligation bond proceeds, an update on the KPERS operating budget and the pension administration system modernization project, and a statutory review of ‘‘working after retirement’’ exceptions.
The committee listed four final recommendations in its report: consider an extraordinary payment to KPERS; continue study of the deferred retirement option program (including possible expansion or extension); require fiscal analysis of COLA proposals and finance them when enacted; and continue narrowly focused study of potential Tier 3 enhancements. The committee emphasized these as suggestions for legislative consideration rather than directives to enact a specific measure.
Senators on the committee voiced shared caution about increasing unfunded liabilities while also recognizing improvements in KPERS’ management and returns. The committee noted prior extraordinary contributions and bonding had been used in the past to address funding gaps.
The committee report and supporting materials (including actuarial and investment detail) were filed with the legislative record and will inform any bills the House or Senate subsequently take up on KPERS issues.
