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 11, 2021


The Honorable Steven Johnson, Chairperson
House Committee on Insurance and Pensions
Statehouse, Room 276A-W
Topeka, Kansas 66612
Dear Representative Johnson:
SUBJECT: Fiscal Note for HB 2042 by Representative Highland
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2042 is
respectfully submitted to your committee.
HB 2042 would enact the Kansas Thrift Savings Plan Act, which would create a defined
contribution plan effective on and after July 1, 2024. The Thrift Savings Plan would be available
to all retirement groups, which includes Kansas Public Employees Retirement System (KPERS),
Kansas Police and Firemen’s Retirement System (KP&F), and the Retirement System for Judges
(Judges). The bill would require the KPERS Board of Trustees to establish a separate Thrift
Savings Plan under sections 401(a) and 414(d) of the Federal Internal Revenue Code. The plan
would be required to have a Roth contribution option for members. KPERS would be allowed to
enter 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.
New employees would be allowed to make a one-time irrevocable election to become a
member of the Thrift Savings Plan within 14 days of the start of employment. Current active
members of all retirement groups would be allowed to make a one-time irrevocable election to
become a member of the Thrift Savings Plan within a 90-day period to be determined by the Board.
Active members could not become members of the Thrift Savings Plan until the Board of Trustees
receives approval from the Internal Revenue Service. An election of an active retirement group
member to become a member of the Thrift Savings Plan would be for all the member’s credited
service. An election to become a member of the Thrift Savings Plan would terminate active
membership in the defined benefit plan. KPERS would be required to calculate the actuarial
present value of a member’s accrued retirement benefit for all service prior to July 1, 2024 and
transfer the lump sum amount to the member’s Thrift Savings Plan account. Members would be
allowed to rollover contributions in other retirement plans into the member’s Thrift Savings Plan
account.
The Honorable Steven Johnson, Chairperson
Page 2—HB 2042

The employee contribution rate for Thrift Savings Plan members would be 3.0 percent and
the employer contribution rate would be 4.0 percent. However, if the employee contributes 4.0
percent, the employer rate would increase to 4.5 percent. If the employee contributes 5.0 percent,
the employer would also contribute 5.0 percent. The bill specifies the type of investments that
would be offered to members. There would be a default investment option for any member who
does not select an investment direction. The bill would outline procedures for distributions,
termination of service and beneficiaries.
According to KPERS, the actuarial effect from HB 2042 cannot be determined because it
is unknown how many employees would choose to become members of the Thrift Savings Plan.
While KPERS does not expect many KP&F or Judges members to become members of the Thrift
Savings Plan, KPERS estimates the plan may appeal to a high number of KPERS members because
of the lower employee contribution rate. Currently, KPERS members contribute 6.0 percent of
their salary. A large number of KPERS member elections into the Thrift Savings Plan would
reduce the number of members in the defined benefit plan. This would affect the long-term funding
of the KPERS Trust Fund.
The bill does not require employers to continue making contributions to the unfunded
actuarial liability if employees join the Thrift Savings Plan. This would reduce the payroll base of
the defined benefit plan, which would result in an increase in employer contribution rates.
Additionally, KPERS estimates long-term employer costs would be higher under the Thrift
Savings Plan than under the current KPERS 3 Cash Balance Plan.
The movement of employees from the defined benefit plan to the Thrift Savings Plan has
the potential to affect KPERS Trust Fund cash flow. Any reduction in cash flow would increase
the gap between benefits and contributions. To meet cash flow needs, the KPERS portfolio asset
allocation would have to shift to more liquid investments, which could reduce the rate of return.
Any reduction to the rate of return would require increases to employer contributions.
KPERS estimates the bill would require additional salaries and wages expenditures of
$938,000 for 15.00 new FTE positions for start-up costs in FY 2023, FY 2024, and FY 2025.
Beginning in FY 2026, KPERS indicates ongoing salaries and wages expenditures would be
reduced to $682,000 for 7.00 FTE positions. Additionally, the agency estimates there would be
additional information technology expenditures of $200,000 in FY 2024. In general, KPERS
expects additional expenditures for actuarial services; defined contribution plan, investment and
audit services; legal services; communications; third-party recordkeeping, trust and investment
services; and contract monitoring. Any fiscal effect associated with HB 2042 is not reflected in
The FY 2022 Governor’s Budget Report.

Sincerely,

Adam Proffitt
Director of the Budget
cc: Jarod Waltner, KPERS