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HB 2086

Adjusting the KPERS 3 dividend interest credit by lowering the dividend interest credit threshold to 5% and increasing the dividend share to 80%.

2025-2026 Regular Session

HB 2086 increases KPERS Tier 3 discretionary dividends by raising the share of excess returns to 80% and lowering the threshold to 5%, boosting member benefits.

Died in Senate Committee
#retirementandpensions
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Bill Summary · HB 2086

HB 2086 — Summary (KPERS Tier 3 dividend interest credit)

Purpose

HB 2086 (introduced Jan. 24, 2025) modifies how Kansas Public Employees Retirement System (KPERS) Tier 3 members receive the discretionary annual dividend (additional interest) credit. The bill lowers the investment-return threshold that triggers a dividend and increases the share of investment returns that is credited to members, thereby increasing Tier 3 retirement benefits.

Key provisions

  • Amends K.S.A. 74-49,306 and 74-49,308 (KPERS Tier 3 interest/dividend rules).
  • Changes the statute so that, for calendar year 2024 and thereafter, the annual dividend equals:
    • 80% (was 75%) of the five‑year average net compound rate of return on the KPERS Trust Fund
    • only the portion of that five‑year average that is above a 5% threshold (was 6%).
  • Removes certain outdated language (technical amendments).
  • Annual dividend is posted based on account values as of Dec. 31 and credited by March 31 (or as soon as practicable).

How it works (mechanics)

  • KPERS Tier 3 is a cash‑balance design: members have a contribution account and an employer pay credit account that currently earn a guaranteed 4.0% interest plus an annual discretionary dividend if the system’s five‑year average return exceeds the threshold.
  • Under HB 2086, a lower hurdle (5% vs. 6%) and a larger share of excess return (80% vs. 75%) increase the likelihood and size of annual dividends credited to member accounts.

Fiscal impact (per DOB / KPERS fiscal note, Feb. 3, 2025)

  • Members affected: ~79,886 Tier 3 members (State/School and Local groups) plus future Tier 3 entrants.
  • Example: A career employee with 30 years and $60,000 salary — replacement ratio rises from 33.2% to 36.5%; annual KPERS benefit rises from ~$19,920 to ~$21,900 (+$1,980; +9.9%).
  • State/School Group:
    • Increase in unfunded actuarial liability (UAL): ~$102.1 million.
    • If costs are amortized (no upfront payment): employer contribution rate rises by 0.48 percentage points (11.68% → 12.16%) in FY2026, costing ~$27.0 million (all funds); ~85% of that (~$23.0 million) estimated from the State General Fund.
    • If State pays the UAL upfront ($102.1M), the employer rate would still rise 0.35 percentage points to cover ongoing cost (~$19.8M all funds; ~$16.8M State GF).
  • Local Group:
    • UAL increase: ~$43.7 million.
    • Without state upfront payment: employer contribution rate increases 0.58 percentage points (9.59% → 10.17%) in calendar year 2026, costing ~ $12.9 million across ~1,400 local employers.
    • If state pays upfront for the Local Group, employer rate increase would be 0.41 percentage points (~$9.1M).
  • KPERS operational impact: negligible (publication updates only; no additional staffing/IT required).
  • DOB notes these fiscal effects are not reflected in the FY2026 Governor’s Budget.

Who is affected

  • Primary: KPERS Tier 3 members (state employees, public school employees, local government employees).
  • Employers: State/School employers (state agencies and school districts) and Local Group employers — facing higher KPERS contribution rates unless the state makes an upfront UAL payment.
  • KPERS financial position: increased funding risk and higher long‑term employer contribution requirements.

Timeline / procedure

  • Committee hearing scheduled: Thursday, March 6, 2025 (9:30 AM, Room 546‑S).
  • DOB fiscal note dated Feb. 3, 2025; actuarial estimates use KPERS data as of Dec. 31, 2023.
  • Under current law, any benefit enhancement must be recognized in the fiscal year immediately following enactment (so FY2026 impacts are highlighted).

Notes

  • The bill is intended to improve competitiveness of Tier 3 benefits (testimony cited recruitment/retention of teachers and other public employees).
  • Increased member benefits come with higher employer costs and greater pension funding obligations over time.

Compiled from official sources — confirm details with the bill’s official record.

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