H.B. 2542, as amended, would repeal three statutory restrictions on real estate investments that the Kansas Public Employees Retirement System (KPERS) Board of Trustees must follow when investing the System's funds. These constraints include requirements in K.S.A. 74-4921, Section (5)(c)(i-viii) that the System: participate in new investments only if two other sophisticated co-investors also invest; own no more than a 20 percent interest in any new investments; and own positions in commingled funds only to the extent that investments individually do not exceed 20 percent of the total real estate portfolio.
The KPERS Board requested legislation during the 1997 Session to remove the three investment constraints as applied to real estate investments. The bill was introduced during the 1997 Legislature upon recommendation of the House Appropriations Subcommittee on KPERS issues and was carried over to the 1998 Session.
No opponents appeared when a public hearing was held on KPERS bills, including H.B. 2542 that was recommended by the House Appropriations Subcommittee again in 1998. The House Committee amendments were technical and updated the citation references to reflect 1997 changes in statutes. The statutory real estate restrictions originally were enacted in 1993 after the KPERS investments losses of the 1980s and early 1990s were revealed.
The fiscal note indicates that the bill as introduced would have no actuarial impact on the Fund. KPERS indicates that there would be no administrative costs. In testimony to the Joint Committee on Pensions, Investments and Benefits, it was reported that earnings might increase if restrictions were removed since the current provisions imposed artificial restraints on investment choices in the real estate market.
As of December 31, 1997, the System had $324 million invested in real estate, including $192 million in a separate account portfolio and $132 million in commingled funds. The KPERS Board of Trustees has increased its investment goal for real estate and raised from 5.0 to 10.0 percent of the Fund to be invested in real estate. This amount would be approximately $723 million based on market values as of December 31, 1997. H.B. 2542 would allow the Board more latitude to invest an additional $396 million without current restrictions, and would remove the restrictions placed on current real estate investments.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.