KPERS director outlines plan structures, options to alter KPERS‑3 benefit levers and costs of COLA scenarios

Alan Conroy, Executive Director of the Kansas Public Employees Retirement System (KPERS), presented an overview of KPERS plan design for the Special Committee on State Employee Compensation and outlined how changes to KPERS‑3 design elements or ad‑hoc cost‑of‑living adjustments would affect liabilities and employer costs.

Plan design: Conroy summarized the three KPERS tiers. KPERS‑1 (members before July 1, 2009) and KPERS‑2 (members between 2009 and 2014) are traditional defined‑benefit plans with final average salary formulas; KPERS‑3 (members hired January 1, 2015, and later) is a career‑average hybrid that includes notional accounts, employer pay‑credits and guaranteed crediting. KPERS‑3 members contribute 6% and the employer contributes the statutory employer rate; KPERS‑3 provides guaranteed 4% interest crediting on member accounts and a lifetime annuity when the account is annuitized.

Why it matters: lawmakers asked how changes to KPERS‑3 might improve benefits for long‑term employees without reopening KPERS‑1/2 legal protections. Conroy said KPERS‑3 plan parameters can be adjusted by the legislature and presented several “levers” that would change typical member annuities and the related state school group employer costs.

Cost illustrations: Conroy illustrated that a 1 percentage‑point increase in employer pay credits would raise employer (normal) cost by about 0.65 percentage points, roughly $38 million for the state school group; raising the guaranteed interest credit from 4% to 5% would carry a higher incremental cost (about $72 million annually); moving the annuitization assumption by 1% had a smaller but material impact (roughly $24.2 million). He also presented how a compounding permanent COLA at 1%, 2% or 3% would increase liabilities and normal costs (the report estimated a 1% permanent COLA would raise unfunded liabilities by about $760 million and the state‑school annual cost by about $66 million under the sample assumptions).

Other points: Conroy clarified that KPERS‑3 permitted voluntary, self‑funded short COLAs (a member can elect a self‑funded 1% or 2% option at annuitization that reduces the initial monthly benefit). He also provided a one‑time 5% example for cohorts of retirees (e.g., retirees before 1998; earlier cohorts would cost lower totals because the group is smaller).

Ending: Conroy told the committee moving large plan design features is costly and laid out the tradeoffs and approximate price tags so legislators could weigh options during the budget process.