Actuarial Fiscal Note


Retirement Systems Impacted by Legislation:

Teachers Retirement System

FUND(S):

TRS 2601

Sources of Revenue:

General Fund

Legislation creates:

Neither Program nor Fund



Actuarial Note Summary


Impact this measure will have on the liabilities and contributions associated with the retirement system(s).


    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation.
    
    Section 18-7A-28e ( a ) prohibits increases to retired members in excess of 1% of the TRS Actuarial Accrued Liabilities as determined in the last actuarial valuation for TRS. The estimated increase in Actuarial Accrued Liabilities under the bill exceeds the limitation as of July 1, 2010 Actuarial Valuation.
    
    Section 18-7A-28e ( c) prohibits any increase to active members prior to July 1, 2034. The bill violates the restriction by adding future COL increases to active members following their future retirement.
    
    See the Pension Committee chairman for details.



Fiscal Detail of Actuarial Impact

Impact on current benefit costs, prior service benefit costs and ongoing contribution requirements following full implementation.


Impact On Following Full Implementation
Increase in Unfunded Actuarial Accrued Liability Initial Impact on Annual Contribution Requirement of System(s) Contribution Increase as a Percentage of Annual Payroll
Total Annual Costs $999,999,999.00 $999,999,999.00 99.99 %
Normal Cost of System N/A $999,999,999.00 99.99 %
Past Service Liabilities $999,999,999.00 $999,999,999.00 99.99 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2021 N/A


Explanation of above estimates:


    The bill provides that effective July 1, 2011, annual Cost of Living increases will be granted equal to the CPI published by the US DOL, Bureau of Labor Statistics limited to an increase of 5% in any one year. An increase will be provided each year to retirees and eligible beneficiaries who are at least age 60 and have been retired for 5 or more years.
    
    The bill would provide the increase to existing retirees and to future retirees from the active membership. Both the Normal Cost and Actuarial Accrued Liability will be significantly increased under the bill.
    
    The Board Actuary has not determined the exact amount of the increase due to the significant violation of 2005 Pension Reform limitations.

Analysis of Impact on Public Pension Policy:


    The bill provides a significant shift in public pension policy in West Virginia by the addition of automatic COL increases to retirees in TRS.
    
    Currently, only State Police and Judges have automatic COL increases for retirees, with those increases being limited in each plan and not subject to full COL under the CPI.



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation.
    
    Section 18-7A-28e ( a ) prohibits increases to retired members in excess of 1% of the TRS Actuarial Accrued Liabilities as determined in the last actuarial valuation for TRS. The estimated increase in Actuarial Accrued Liabilities under the bill exceeds the limitation as of July 1, 2010 Actuarial Valuation.
    
    Section 18-7A-28e ( c) prohibits any increase to active members prior to July 1, 2034. The bill violates the restriction by adding future COL increases to active members following their future retirement.
    
    See the Pension Committee chairman for details.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2011
Increase/Decrease
(use"-")
2012
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 999,999,999 999,999,999
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


    The bill provides that effective July 1, 2011, annual Cost of Living increases will be granted equal to the CPI published by the US DOL, Bureau of Labor Statistics limited to an increase of 5% in any one year. An increase will be provided each year to retirees and eligible beneficiaries who are at least age 60 and have been retired for 5 or more years.
    
    The bill would provide the increase to existing retirees and to future retirees from the active membership. Both the Normal Cost and Actuarial Accrued Liability will be significantly increased under the bill.
    
    The Board Actuary has not determined the exact amount of the increase due to the significant violation of 2005 Pension Reform limitations.



Memorandum


    The bill provides a significant shift in public pension policy in West Virginia by the addition of automatic COL increases to retirees in TRS.
    
    Currently, only State Police and Judges have automatic COL increases for retirees, with those increases being limited in each plan and not subject to full COL under the CPI.



    Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
    Email Address: harry.w.mandel@wv.gov