On September 14, 2022 the KCERA Board of Retirement unanimously voted to restructure the Supplemental Retiree Benefit Reserve (SRBR) Program. This change came after more than a year and a half of working meetings with the Finance Committee and the Board to improve the mix of benefits to reflect the following objectives:
- Allocate additional funds by increasing benefits
- Increase predictability of future assets and liabilities
- Exercise duty of loyalty to all KCERA members
- Simplify the benefit structure
- Do no harm to any members already receiving benefits
The funding for the SRBR Program is unpredictable. New money only enters the SRBR fund when KCERA’s investment return exceeds the assumed rate of return (currently 7.25%) over a 5-year rolling average. The last time new principal entered the SRBR fund was approximately 14 years ago.
Before the recent revisions, the SRBR Policy required the Board consider new benefits whenever the funded ratio exceeded 120% two years in a row, and required the Board consider eliminating benefits when the funded ratio fell below 120% for two consecutive years. This ongoing need to re-evaluate benefits, along with the wide range of benefit options available to the Board, regularly resulted in prolonged and burdensome approval processes.
With the help of KCERA’s actuaries, KCERA Staff proposed a new benefit structure to address the past problems and allocate funds to all members, including current and future retirees. KCERA Trustees considered a range of new benefit options, but ultimately favored a single benefit based on years of service (“Years of Service Benefit”).
KCERA Staff and Trustees focused on developing a benefit structure that would maintain SRBR benefits for any member who was already receiving them while creating a more predictable and sustainable structure for the future. To do so, KCERA Staff worked with its actuaries to devise a process in which all members will have their SRBR benefit calculated, on a one-time basis, under the new “Years of Service” benefit ($1.80 per year of service) and the old SRBR 1-4 structure. The two calculations will be compared and members will then receive whichever benefit calculation yields a higher result.
One of the best aspects of this Restructured SRBR is that eligible members will receive a 2.5% COLA on their SRBR benefit every year, so long as the SRBR remains adequately funded.
Under the Restructured SRBR, KCERA’s Board will consider benefit changes when the SRBR funding is above 115% funded or below 95% funded for two consecutive years. If the funded ratio begins to creep up above 115%, the KCERA Board can increase benefits or change the eligibility date to include more members. If the funded ratio drops below 95%, the Board can simply suspend or reduce the annual 2.5% SRBR COLA to bring the funded status within range.
We believe this is a significant improvement to the SRBR Program because it creates a durable structure that will be functional for generations in the future.
The change in benefit structure is effective July 1, 2022, but it will take time for staff to fully implement the change. For eligible retirees whose benefit is greater under the Years of Service calculation, Staff is currently targeting January 2023 for the first new payments, and February for any retroactive payments. The first 2.5% COLA will be applied July 1, 2023 for all eligible recipients.