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Senate committee hears bill to boost KPERS 3 dividend credits; proponents say change would help teacher recruitment and retention
Summary
A Senate committee heard testimony on House Bill 2,086, which would lower the dividend-interest threshold for KPERS 3 from 6% to 5% and raise the dividend share from 75% to 80%, increasing estimated benefits for long‑career Tier 3 members and carrying estimated one‑time and ongoing costs for state and local employers.
The Senate Committee on Financial Institutions and Insurance on Thursday heard testimony on House Bill 2,086, which would change how dividend interest credits are calculated for KPERS 3 members by lowering the return threshold from 6% to 5% and increasing the dividend share from 75% to 80%.
Proponents including the Kansas Association of School Boards and the Kansas National Education Association said the change would modestly improve retirement benefits for many teachers and help recruitment and retention. "Improving that benefit would greatly help us in addressing the teacher shortage in Kansas," said Shannon Campbell, Kansas Association of School Boards. "The impact that the KPERS benefit has on our ability both to recruit new teachers and then keep them in the profession throughout their careers here in Kansas, is becoming a significant issue."
Tim Graham of the Kansas National Education Association told the committee that teacher shortages are real in Kansas and that Tier 3 does not provide the same retirement replacement ratio as earlier tiers. "There are two things in this building as it relates to this issue that we all seem to agree on. One of them is that teacher shortages are real in Kansas, and the other one is that KPERS Tier 3 needs to be improved," Graham said.
KPERS staff described the technical mechanics of KPERS 3 and the cost implications. Alan Conroy, testifying for KPERS, explained that "KPERS 3 members contribute 6%" and that the plan guarantees a 4% interest credit to members but may add dividend credits when the five‑year average return exceeds the statutory threshold. Conroy summarized the bill's effect: using the actuary's example, a 30‑year career member's retirement replacement ratio would rise from about 33% under current KPERS 3 rules to about 36% under the bill; a worked example in the testimony showed a teacher with a $60,000 final salary would see an estimated annual benefit increase from about $19,900 to about $21,900—roughly $2,000 or 10%.
KPERS staff also estimated costs. Conroy said the change would increase the unfunded actuarial liability for the state school group by a little over $100 million (one‑time) and increase ongoing state school normal cost by about $20 million per year (about a 0.3 percentage‑point increase in the employer contribution rate). Amortizing both impacts would raise the state school contribution by about $27 million a year; local employer impacts were described similarly in the written materials provided to the committee.
Committee members asked about the historical context of KPERS tiers, the effect of paying actuarially required contributions, and trade‑offs with other approaches such as merit pay. Conroy described the evolution: KPERS 1 (traditional final‑average formula) dates to the 1960s; KPERS 2 was created in 2009 with changes to reduce cost; KPERS 3, enacted in 2015, is a cash‑balance, risk‑sharing design that reduced employer risk compared with earlier tiers. Committee members noted the system's long history of underfunding; one member said the state did not fully fund employer contributions for 25 years, creating the large unfunded liability the state is now addressing.
The committee did not take a committee vote on the bill at this hearing; the chair closed the hearing and said additional testimony was being collected on a related earlier bill (02/1934) and that subsequent testimony on that matter may be scheduled.
The hearing record includes written proponent testimony and neutral material provided by KPERS and others. Committee members asked KPERS staff for comparative tables and cost documents, which were handed out during testimony.
Looking ahead, proponents asked the committee to view the bill as a first incremental step rather than a final solution to Tier 3 shortcomings. "We understand that the challenges you all face," Graham said. "We can't do everything in one year, but we would like to see an incremental approach to improving Tier 3."
