Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 larry.campbell@ks.gov
Topeka, KS 66612 Division of the Budget http://budget.kansas.gov
Larry L. Campbell, Director Laura Kelly, Governor


February 12, 2019


The Honorable Jim Kelly, Chairperson
House Committee on Financial Institutions and Pensions
Statehouse, Room 581-W
Topeka, Kansas 66612
Dear Representative Kelly:
SUBJECT: Fiscal Note for HB 2141 by House Committee on Financial Institutions and
Pensions
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2141 is
respectfully submitted to your committee.
HB 2141 would establish in statute a new 30-year amortization period for the Kansas
Public Employees Retirement System (KPERS) State/School Group unfunded actuarial liability.
The current amortization period was set in 1993 for a period of 40 years. Under current law,
amortization methods and decisions are determined under the authority of the KPERS Board of
Trustees. The amortization schedules of all other retirement groups would not be changed.
KPERS School employer contributions were reduced by $64.1 million in FY 2017 and by
$194.0 million in FY 2019. Repayments of the reductions were “layered” or amortized as level
dollar amounts over 20 years. The respective “layering” payments are $6.4 million and $19.4
million annually. HB 2141 would eliminate the layering payments.
If the bill is enacted, the Director of the Division of the Budget would be required to certify
to the Director of the Division of Accounts and Reports in the Department of Administration lapses
to State General Fund accounts and decreases to special revenue fund expenditure limitations in
each state agency within the KPERS State/School Group. The amounts of the lapses and decreases
would be equal to reductions to KPERS State/School Group employer contributions in FY 2020
resulting from establishing a new amortization period. A copy of the certification must be provided
to the Director of Legislative Research.
As part of her budget, the Governor proposes that a new 30-year amortization period be set
for the KPERS State/School Group unfunded actuarial liability. The current KPERS State/School
The Honorable Jim Kelly, Chairperson
Page 2—HB 2141

Group unfunded actuarial liability is $6.6 billion. The Governor’s proposal includes the following
elements:
1. Set a new 30-year amortization period for the KPERS State/School Group unfunded
actuarial liability;
2. Eliminate the $6.4 million and $19.4 million “layering” payments. Currently, the layering
payments are appropriated separately from amounts appropriated for regular employer
contributions in the Department of Education budget. Eliminating the layer payments
would allow the separate line items to be removed; and
3. Eliminate a $56.0 million transfer from the State General Fund to the KPERS Trust Fund
that will occur in FY 2019 if State General Fund receipts are above estimates. Elimination
of the transfer is not in HB 2141; it is included in other appropriations bills introduced this
session.
KPERS’ consulting actuary completed a cost study based on the Governor’s reamortization
policy. Generally, extending the amortization period out 30-years would reduce employer
contributions in the near term but increase the overall cost to pay down the unfunded actuarial
liability. From an actuarial perspective, KPERS estimates HB 2141 would reduce FY 2020
employer contributions by $160.5 million from all funds, which includes the elimination of $25.8
million in “layering” payments. The actuarial required contribution rate would decrease from
14.74 percent to 11.45 percent in FY 2020. However, reamortizing the KPERS State/School
Group unfunded actuarial liability for a new 30-year period would cost an additional $7.4 billion
from all funds over the long term. KPERS notes that eliminating the “layering” payments and the
$56.0 million transfer would also increase the unfunded actuarial liability.
KPERS indicates that, under current law, the current $6.6 billion unfunded actuarial
liability of KPERS State/School Group is scheduled to be paid off by FY 2035. KPERS estimates
that HB 2141 would cause negative amortization in which the unfunded actuarial liability grows
in the near term and would not be extinguished until after FY 2047. The bill would also delay
when the funded ratio of the KPERS State/School Group reaches 80.0 percent. Under current law,
the KPERS State/School Group is estimated to achieve a funded ratio of 80.0 percent by FY 2026.
Under HB 2141, the KPERS State/School Group would reach 80.0 percent by FY 2038. A pension
system that is 80.0 percent funded and on its way to 100.0 percent is considered to be in good
standing. KPERS indicates that pension systems with lower funded ratios are more vulnerable to
downturns in the market. The current funded ratio for all KPERS plans (including KPERS Local
Group) is 67.4 percent.
When developing the Governor’s budget, it was originally estimated by the Division of the
Budget that resetting the amortization period to 30 years could produce budget savings of $145.3
million from the State General Fund and $160.1 million from all funds in FY 2020. These
estimates were included in The FY 2020 Governor’s Budget Report and based on a preliminary
KPERS cost study. Since the release of the budget, updated information was provided by KPERS
and it is now estimated that reamortization would result in budget savings of $176.4 million from
The Honorable Jim Kelly, Chairperson
Page 3—HB 2141

all funds, including $160.0 million from the State General Fund. It is important to note that the
Division of the Budget and KPERS use different methods for projecting salaries and wages
information used when making estimates. KPERS uses actuarial data and assumptions which
include, among other things, estimated payroll growth of 3.0 percent per year. The Division of the
Budget uses salaries and wages information contained in agency budgets submitted for the FY
2020 budget cycle. These are not viewed as competing methodologies. They are different ways
of making projections and explain the different estimates for HB 2141 provided by KPERS and
Governor.


Sincerely,

Larry L. Campbell
Director of the Budget


cc: Jarod Waltner, KPERS


Statutes affected:
As introduced: 74-4920, 74-4931