How KPERS Benefits Work
The 1962 Retirement Act (KSA 74-4901 et seq.) created the Kansas Public Employees Retirement System (KPERS) to provide state employees with retirement, death, and disability benefits. Depending on the time an employee entered service, they are eligible for either KPERS 1, 2, or 3.
KPERS 1 and 2 provide a fixed, pre-established benefit for members at retirement. KPERS 3 utilizes a cash balance plan where employees contribute a fixed percentage of each paycheck to an account that is intended to fund their retirements. Unlike other benefit plans at KPERS, cash balance plan benefits are based on the account balance. The higher the balance, the greater the return. KPERS 3 is the largest coverage group in the state.
Economic Changes
The value of fixed benefits can decrease over time because of changes in the economy, such as inflation. The longer a retiree or beneficiary lives in retirement, the greater the effect inflation will have on how much purchasing power those benefits have.
In 2003, the average annual retirement benefit was about $10,000. The average annual inflation in the Consumer Price Index (CPI)–Urban over the 20 years since then is about 2.5 percent. The purchasing power of that $10,000 benefit was about $6,200 in 2022 under a scenario reflecting the actual annual rates of inflation, or about $7,400 when adjusted for inflation.
Cost-of-living Adjustments
Cost-of-living adjustments (COLAs) are plan features that modify retirement benefits to counteract the impact of economic changes. COLAs can be implemented either automatically or on an ad hoc basis.
Automatic adjustments occur on a regular, predetermined schedule and do not require additional action by the plan sponsor. These adjustments are generally to an index, such as the CPI.
In contrast, ad hoc adjustments require approval of the plan sponsor or a delegating authority. In Kansas, that authority resides within the Legislature.
COLAs in Kansas
KPERS plans have not included a COLA since the system was created, with three exceptions:
- KPERS 2 included an automatic 2.0 percent COLA when it was created in 2007, but the authorizing statute was repealed in 2012;
- KPERS 3 has a self-funded COLA 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; and
- A 13th check benefit was paid to members from 1980 to 1987.
In total, the Legislature has approved both permanent and one-time ad hoc COLAs, including a 13th check benefit, 16 permanent adjustments, and five one-time benefit payments. A COLA has not been approved since 2008.
Cost and Funding of COLAs
When a COLA is approved, any costs associated with a COLA are funded through current employee or employer contributions, as retired members do not make current contributions. Alternatively, COLAs can be funded through a one-time payment equal to the change in the unfunded actuarial liability (UAL), or the cost can be amortized over a number of years.
Recent COLA Legislation
Automatic COLA
During the 2022 Legislative Session, 2022 HB 2583 and SB 401 would have implemented an automatic COLA for all retirees starting June 30, 2022. COLA increases would have been tied to the CPI, ranging from no COLA to a 5.0 percent COLA, depending on the CPI increase. The projected cost for the bill was a $4.9 billion increase in the UAL. If funded over a 20-year period, the projected average annual cost would have been about $500.0 million.
Ad Hoc COLA
2023 HB 2252 and SB 198 would provide a single, permanent adjustment for those who retired before July 1, 2018. The adjustment would be tiered from 1.0 to 5.0 percent, depending on how long the member has been retired. According to the KPERS actuary, and based on the December 31, 2021, valuation, enactment of these bills would make 90,969 retirees and beneficiaries, or about 82.3 percent, eligible for a COLA. The projected increase in the UAL was $353.5 million. If funded over a 15-year period, the average annual cost would be approximately $31.5 million. Alternatively, the Division of the Budget estimated the State could fund its portion of the UAL increase with a lump-sum payment of $263.6 million from the SGF to KPERS for state groups in FY 2024.
13th Check – One Time Distribution
2022 HB 2742 would have issued a one-time 13th check payment to retirees on or before July 1, 2022. The projected cost of the bill at the time was $142.4 million.
Self-funded COLA
2023 HB 2025 would add a self-funded COLA options for members of KPERS 1 and 2, similar to the benefits for current members of KPERS 3. Enactment would have no actuarial cost to KPERS.
For more information, contact:
Steven Wu
Managing Fiscal Analyst
Dylan Dear
Assistant Director of Fiscal Affairs
Kansas Legislative Research Department
Kansas State Capitol Building
300 W. 10th, Suite 68-West
Topeka KS 66612-1504
(785) 296-3181
kslegres@klrd.ks.gov

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