KPERS Tier 3

Created in 1961, the primary purpose of the Kansas Public Employees Retirement System (KPERS or Retirement System) is to accumulate sufficient resources to pay benefits to retired state workers statutorily entitled to those benefits. As of December 2023, KPERS manages approximately $26.41 billion on a market value basis and $27.58 billion in actuarially valued assets.

Membership in the original retirement plan, now referred to KPERS Tier 1 (Tier 1), was offered to state and local public employees qualified under the new law and whose participating employers chose to affiliate with KPERS. In 2007, KPERS Tier 2 (Tier 2) was created for state, school, and local public employees becoming members on and after July 1, 2009.

In response to the 2008 recession and a 2011 study commission, the 2012 Legislature created KPERS Tier 3 (Tier 3), a cash balance plan for members employed on or after January 1, 2015.

KPERS Tier 3 Plan Design

The Tier 3 cash balance plan is similar to defined benefit plans—like Tiers 1 and 2—with characteristics of defined contribution plans—like 401(k) or 403(b) plans.

Similar to defined contribution plans, members have an account balance for employee contributions and employer credits. These accounts are notational (that is, all assets remain in the KPERS Trust Fund), and risks are shared between employer and employee.
Similar to defined benefit plans, retirement benefits are paid for life, and notational accounts are guaranteed a minimum interest crediting rate. Additionally, assets are pooled, and employer contributions are determined by an annual actuarial valuation.

Employee Membership

Membership is mandatory for all employees in covered positions, other than elected officials. As of December 2023, Tier 3 constitutes the largest share of members among KPERS plans, with 57,209 active State/School members and 22,657 active Local members.

Retirement Eligibility

Members are eligible for normal retirement at age 65 with 5 years of service or age 60 with 30 years of service. Since 2015, the Tier 3 plan serves as the primary retirement plan for new KPERS members.

Members are eligible for early retirement at age 55 with 10 years of service. However, because of Tier 3’s design as a cash balance plan, early retirement benefits are based on the account balance and annuity factor at retirement age.

Vesting Requirements

Vesting (the period of employment necessary for benefits to accrue) occurs at five years of service. If termination of employment occurs before vesting, interest would be paid for the first two years if employee contributions are not withdrawn. Conversely, if termination occurs after vesting, members have the option to leave contributions and draw retirement benefits when eligible or withdraw employee contributions and interest but forfeit all employer credits and service.

Retirement Benefits

By default, retirement distribution occurs as a single life with 10-year certain annuity. Differing from Tier 1 and Tier 2 plan designs, the Tier 3 plan is based on the member’s contributions and retirement credits earned from the employer, which are tracked throughout the member’s career. Interest is applied to the two accounts, and the benefit is based on the total account balance at retirement and has nothing to do with the number of years worked or finalized average salary.

The two components of interest credited under the cash balance plan are the guaranteed portion and the dividend. The guaranteed interest credit rate on the member and employer accounts is 4.0 percent, and the discretionary dividend credit is a dividend design (KSA 74-49,3061) equal to 75.0 percent of the five-year average net compound rate of return above 6.0 percent, as determined by the KPERS Board for the calendar year and the four preceding years.

Other Tier 3 benefits include the following:

• Withdrawal Benefit. Members who terminate employment may withdraw contributions with interest after the last day on the employer’s payroll;
• Disability Benefit. Tier 3 members who become disabled will have their accounts credited with employee contributions, employer retirement credits, interest credits, and dividends for the entire period of disability, but no later than the normal retirement age;
• Post-retirement Benefit. Tier 3 has a self-funded cost-of-living adjustment of 1.0 or 2.0 percent, but that benefit is funded by the member through an actuarial reduction to the member’s lifetime benefit;
• Death Benefit. If a vested Tier 3 member dies before attaining normal retirement age and has a spouse named as a primary beneficiary, that member’s retirement benefit would be distributed to the spouse when eligible; and
• Post-retirement Death. A lump sump amount of $4,000 is made payable to the member’s beneficiary.

Employee Contributions

Members contribute 6.0 percent of pre-tax compensation, and contributions vest immediately. Interest is credited quarterly.

Employer Contributions

Employers contribute 3.0 percent for less than 5 years of service; 4.0 percent for at least 5 but less than 12 years of service; 5.0 percent for at least 12 but less than 24 years of service; and 6.0 percent for 24 or more years of service. Employer contributions are 12.54 percent in FY 2025 and 12.68 percent for FY 2026.