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


March 22, 2023


The Honorable Caryn Tyson, Chairperson
Senate Committee on Assessment and Taxation
300 SW 10th Avenue, Room 548-S
Topeka, Kansas 66612
Dear Senator Tyson:
SUBJECT: Fiscal Note for SB 230 by Senate Committee on Assessment and Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning SB 230 is
respectfully submitted to your committee.
SB 230 would enact the Kansas Thrift Savings Plan (KTSP) Act, which would create a
defined contribution plan effective on and after July 1, 2025. The bill would require the Kansas
Public Employee Retirement System (KPERS) Board of Trustees to establish a separate Thrift
Savings Plan under sections 401(a) and 414(d) of the Federal Internal Revenue Code. Members
of the Kansas Police and Firemen’s Retirement System and the Judges Retirement System would
not be included in the KTSP. The plan would be required to have a Roth contribution option for
members. KPERS would be allowed to enter into contracts with insurers, investment managers,
private firms or other parties for investment and administrative services for the plan. The bill
would allow costs for administration of the plan to be recovered through service charges to
participants or credit allowances or reimbursements from contracted firms.
The bill would make the KTSP mandatory for new members after July 1, 2025, and would
close the existing KPERS defined benefit (DB) plan to new members. Each member that would
participate in the KTSP would have four separate accounts:
1. Member Mandatory Contribution Account—the employee would be required to contribute
a minimum of 6.0 percent of compensation. Contributions could be pre-tax or post-tax and
the member would be immediately vested in this account, including any interest earned on
the account;
2. Member Deferred Compensation Account (457 Account)—the employee would be auto-
enrolled in this account would have an initial contribution of 1.0 percent of compensation.
The contribution would automatically increase 1.0 percent per year up to a maximum
contribution of 10.0 percent. The member could elect to change the contribution; however,
The Honorable Caryn Tyson, Chairperson
Page 2—SB 230

without action, the member would automatically make additional contributions to this
account and the member would be immediately vested in this account;
3. Employer Contribution Account—the employer would contribute 4.0 percent of the
employee’s compensation which could be higher, depending on the member contribution.
If the member contributes 1.0 percent to the 457 Account, the employer would contribute
4.5 percent, and if the member contributes 2.0 percent or more the employer would
contribute 5.0 percent to the 457 Account. The member would vest after five years of
participation in the KTSP;
4. Rollover Account—the bill requires the KTSP to accept assets from other eligible
retirement plans and these assets would be deposited into this account. The member would
be immediately vested in this account.
Each member would be responsible for choosing the investment of the total balance of the
accounts. The bill would require seven investment options for members to select from:
government securities fund; fixed income index fund; common stock index fund; small cap index
fund; international stock index fund; target date fund; investment fund that mirrors or is similar to
the investment portfolio of the KPERS Defined Benefit Plan; and hybrid funds mixing and
matching various investment funds tailored to projected retirement years. The KPERS Board of
Trustees would be responsible for selecting the specific investments for these categories. SB 230
would allow the Board to offer additional investment options, but these seven options would be
required.
KTSP members would be able to file application for distribution of vested account balances
at any time after they terminate employment. Distributions could be made by direct rollover,
“regular” rollover, lump-sum distribution, or some combination of those options. In addition, the
Board would be given the authority to offer additional distributions options. If a member who
leaves employment is not vested in the employer contribution account, the balance of the account
would be forfeited and would be used to pay the administrative expenses of the KTSP.
The bill would allow for a one-time irrevocable election for all existing KPERS members
to move to the KTSP, if approved by the Internal Revenue Service (IRS). Members who elect to
switch would receive a calculation of the present value of their future benefits and an equivalent
amount would be transferred from the DB plan to their rollover account in the thrift plan. A
calculation of the present value of future benefits would require the use of certain actuarial
assumptions to determine the amount of the present value. The irrevocable election provisions of
SB 230 would be severable from the rest of the bill if the IRS does not approve of the election.
SB 230 would have administrative costs to implement the bill and actuarial costs for the
current KPERS DB plan.
Administrative Costs
KPERS indicates that establishing a defined contribution plan would require establishing
additional internal controls and accounting mechanisms to ensure that the assets of the DB trust
and the defined contribution trust are used exclusively for the benefit of the members of each trust.
The Honorable Caryn Tyson, Chairperson
Page 3—SB 230

Ongoing costs would include actuarial services; defined contribution plan, investment, and audit
consultant services; legal services; communication and education costs; a request for proposal for
third-party recordkeeping, trust, and investment services; contract monitoring, audits, and
reporting; and changes to KPERS’ information technology system.
KPERS notes that the following cost estimates assume that KTSP would be administered
by a third-party administrator and that the election for current members to elect to switch from the
DB plan to the KTSP would be allowed by the IRS.
KPERS estimates that it would require 15.00 FTE additional staff positions during the
transition period from FY 2024 through FY 2026. After the transition period, 7.00 FTE positions
would be required for the ongoing administration of the KTSP. The positions would include a
plan manager, benefits staff for education and transition assistance, and corporate accountants in
the fiscal services division. However, only 3.00 FTE positions are estimated to start during FY
2024—a transition coordinator, the plan manager, and an administrator. Those positions are
estimated to be filled for six months of FY 2024 at a cost of $150,000. The staffing costs
would ramp up starting in FY 2025 for the start date of the Kansas Thrift Savings Plan of July 1,
2025. The annual salaries and wages estimate for the transitional years is approximately $983,000
annually for 15.00 FTE positions, including those related to plan startup, employer support,
benefits representatives, and plan management. Of the 15.00 FTE positions, 8.00 would be
temporary positions and 7.00 would be permanent. Permanent staffing salaries and wages
beginning in FY 2027 are estimated to be about $700,000 per year for 7.00 FTE positions
associated with plan management, fiscal monitoring, and member education and support.
In addition, information technology costs would be required and would fall into two
categories: (1) upgrades to KPERS’ information technology system; and (2) additional information
technology hardware and software for the new employees. Assuming that a third-party
administrator would be responsible for tracking member data, changes to the KPERS information
technology system would be necessary to ensure that the system could properly interface with the
third-party administrator to share data, when necessary. The total cost estimate for changes to the
existing information technology system is approximately $231,000 and would have to be
completed prior to the implementation of the Kansas Thrift Savings Plan and would likely occur
in FY 2025.
Actuarial Costs
KPERS indicates that the two main actuarial cost drivers are the long-term cost of the
KTSP (when compared to the current KPERS DB plan), as well as the current KPERS Trust Fund
cash flow (including subsequent changes to the Fund investments).
After the KPERS unfunded actuarial liability is paid off, the normal cost of the current
KPERS DB plan is estimated to be slightly less than 1.0 percent of payroll. However, with SB
230, the minimum employer contribution is 4.0 percent, and could be as high as 5.0 percent for
certain employees, depending on employee contributions to the 457 Account. As a result, KPERS
indicates that the ongoing cost of the KTSP is approximately 3.0 percent to 4.0 percent higher than
the existing KPERS DB plan.
The Honorable Caryn Tyson, Chairperson
Page 4—SB 230

For KPERS Trust Fund cash flow, the agency states that there could be a potentially
significant one-time transfer of assets from the KPERS Trust Fund to the KTSP, if active members
elect to take the future present value of their DB plan benefit to the KTSP. This transfer could be
significant and require the shift of assets to more liquid investments to fund the transfer. This shift
would likely reduce the investment returns of the Trust Fund, which would increase costs long-
term to the state. However, the magnitude of this transfer of KPERS Trust Fund assets to the
KTSP would be dependent on the number of current members that would elect to participate in the
KTSP and cannot be estimated. Because the existing KPERS DB Plan would continue to be
funded on the combined DB and KTSP payroll, the unfunded actuarial liability is not expected to
change dramatically and the KPERS plan is projected to reach 80.0 percent funded and 100.0
percent funded on the same schedule as the current amortization schedule.
SB 230 would close the current KPERS DB plan, which would change the expected
demographic makeup in the future, as new members (typically younger) would no longer be
enrolled in the DB plan. This would “mature” the DB plan and would cause the plan to be more
“cashflow negative” as members continue to age and reach retirement without being replaced. As
cashflow needs increase, future investment allocations may need to be adjusted to more liquid
investments, which tend to have lower expected returns. However, the fiscal effect for this change
cannot be estimated. The provisions that fund the DB over the combined payroll of the DB and
TSP would alleviate this a certain amount but would not eliminate this risk.
The KPERS actuary completed an analysis, looking at the total employer contributions
under two scenarios: (1) if 10.0 percent of existing KPERS members would elect into the KTSP;
and (2) if 50.0 percent of existing KPERS members would elect into the KTSP. Under Scenario
1, the total employer contributions over the 30-year project period would be $18.0 billion,
compared to the $12.3 billion under the current KPERS plan, or a net increase of $5.7 billion.
Under Scenario 2, the total employer contributions over the 30-year project period would total
$20.3 billion, compared to the $12.3 billion under the current KPERS plan, or a net increase of
$8.0 billion. However, the fiscal effect for the actual number of current KPERS members who
would elect into the KTSP cannot be estimated. Any fiscal effect associated with SB 230 is not
reflected in The FY 2024 Governor’s Budget Report.


Sincerely,

Adam Proffitt
Director of the Budget

cc: Jarod Waltner, KPERS
Lynn Robinson, Department of Revenue


Statutes affected:
As introduced: 74-4927, 74-4920