Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 adam.c.proffitt@ks.gov
Topeka, KS 66612 Division of the Budget http://budget.kansas.gov
Adam Proffitt, Director Laura Kelly, Governor


May 22, 2023


The Honorable Nick Hoheisel, Chairperson
House Committee on Financial Institutions and Pensions
300 SW 10th Avenue, Room 582-N
Topeka, Kansas 66612
Dear Representative Hoheisel:
SUBJECT: Fiscal Note for HB 2365 by Representative Vic Miller, et al.
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2365 is
respectfully submitted to your committee.
HB 2365 would reopen the KPERS Tier 2 plan to new members on July 1, 2023, and would
abolish the KPERS Tier 3 plan on January 1, 2024. All active and inactive KPERS Tier 3 members
would be converted to KPERS Tier 2 members by January 1, 2024. If a current KPERS Tier 3
member would receive a higher benefit under KPERS Tier 3 than under Tier 2, the member would
retain the KPERS Tier 3 benefits.
Currently, there are three tiers in the KPERS plan: KPERS Tier 1, KPERS Tier 2, and
KPERS Tier 3. KPERS Tier 1 members began service before July 1, 2009. KPERS Tier 2
members started service between July 1, 2009, and December 31, 2014. KPERS Tier 3 members
started service after January 1, 2015. Each tier has a different retirement plan design. KPERS
Tier 1 and KPERS Tier 2 are traditional defined benefit plans, where benefits are calculated using
a benefit formula. Members pay 6.0 percent of pay and employers contribute an amount calculated
by the KPERS actuary to fund the normal cost and amortize the unfunded actuarial liability.
KPERS Tier 3 is a cash balance plan, where a member’s lifetime benefit is based on
contributions and interest earned through the member’s career. Members contribute 6.0 percent
to a notional account that earns a guaranteed 4.0 percent interest each year and a possible dividend
interest credit based on a statutory formula coupled with the five-year net average rate of return.
Members also have an employer pay account that is credited 3.0 percent to 6.0 percent of pay each
year, based upon the number of years of service of the member. This account also earns a
guaranteed 4.0 percent interest rate, plus a possible dividend payment. However, employers
The Honorable Nick Hoheisel, Chairperson
Page 2—HB 2365

contribute the same actuarial contribution rate for KPERS Tier 3 members as Tier 1 and Tier 2
members.
For administrative costs, KPERS estimates that closing the KPERS Tier 3 plan and
reopening KPERS Tier 2 to new numbers would require approximately $1.6 million from the
KPERS Fund in FY 2024. Of this amount, $1.4 million would be for technical work on the KPERS
IT systems, including testing costs. These changes could be completed in approximately six
months. For the educational and plan administration changes, the agency estimates approximately
$238,000 would be required in FY 2024. The agency notes that more than 68,000 active members
and 38,000 inactive KPERS Tier 3 members would have to be converted to KPERS Tier 2
membership.
For actuarial costs, the KPERS actuary estimates moving the KPERS Tier 3 members to
KPERS Tier 2 would increase the unfunded actuarial liability (UAL) for those members by $217.0
million, based on the difference in the benefit plan design. The proposed changes would affect the
benefit amounts for future retirees so an amortization period of 20 years for the increase in the
UAL was used. The amortization payments are determined using the same methodology as is used
in the actuarial valuation. The actuarial cost estimates are summarized in the following table:
Actuarial Cost Estimate
HB 2365
dollars in millions
FY 2025
Current Changes
Baseline in HB 2365 Difference
Acutarial Liability $ 23,540 $ 23,757 $ 217
Actuarial Assets Value 16,647 16,647 --
UAL $ 6,893 $ 7,110 $ 217
Funded Ratio 70.7% 70.1% -0.6%
Normal Cost Rate 8.89% 9.56% 0.67%
UAL Contribution Rate 8.53% 9.05% 0.52%
Actuarial Contribution Rate 17.42% 18.61% 1.19%
Member Rate 6.00% 6.00% 6.00%
Employer Actuarial Rate 11.42% 12.61% 1.19%
KPERS notes that the increased FY 2025 employer actuarial rate of 1.19 percent would
require an additional $61.4 million in state employer contributions in FY 2025. Using the
assumption that approximately 85.0 percent of state employer contributions are financed from the
State General Fund, the Division of the Budget estimates that approximately $52.2 million in
The Honorable Nick Hoheisel, Chairperson
Page 3—HB 2365

appropriations from the State General Fund would be required for state agencies. Any fiscal effect
associated with HB 2365 is not reflected in The FY 2024 Governor’s Budget Report.


Sincerely,

Adam Proffitt
Director of the Budget

cc: Jarod Waltner, KPERS


Statutes affected:
As introduced: 74-49, 74-4916