Actuarial Fiscal Note


Retirement Systems Impacted by Legislation:

PERS

FUND(S):

2510

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 5-10-22h(c) prohibits increases to active members when the funded percentage in the last Actuarial Valuation for PERS was under 85%. As of the latest July 1, 2010 Actuarial Valuation for PERS, the funded percentage was 74.6%.
    
    Actuarial costs for the provisions of the Bill were not calculated due to the restriction applicable for the 2011 Legislative Session.
    
    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 N/A


Explanation of above estimates:


    The benefits under the Bill provide for significant unreduced retirement benefits after completion of 20 years of contributory participation. Benefits are provided under PERS but are only available to members who are classified as correctional officers.
    
    An actuarial cost study was not completed since these provisions violate the restrictions for PERS under 2005 Pension Reform. If costs are to be completed at a future date, then census information for members qualifying for such improved retirement eligibility must be provided to the Actuary.

Analysis of Impact on Public Pension Policy:


    The concept of providing unreduced retirement benefits under PERS for a select subgroup of members is contrary to the underlying philosophy of PERS as a multiple employer cost sharing plan. Cost sharing funding only works when identical benefits are generally provided to all members. Failure due to Plan design of this underlying philosophy in PERS would result in significant employer subsidies being charged to all other PERS employers (both state and non-state) for the sole benefit of the correctional member group.
    
    It is recommended by the Actuary that if improved benefits for corrections is desired, that a spin-off plan similar to Deputy Sheriffs or Emergency Medical Services be considered in place of this Bill. It should be noted that significant member and employer contributions would be expected as a result of the improved unreduced retirement benefits. A final cost analysis can only be completed once the provisions of such plan are provided in a bill and a complete census of covered correctional members is provided to the Actuary.



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 5-10-22h(c) prohibits increases to active members when the funded percentage in the last Actuarial Valuation for PERS was under 85%. As of the latest July 1, 2010 Actuarial Valuation for PERS, the funded percentage was 74.6%.
    
    Actuarial costs for the provisions of the Bill were not calculated due to the restriction applicable for the 2011 Legislative Session.
    
    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 999,999,999 999,999,999 999,999,999
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 benefits under the Bill provide for significant unreduced retirement benefits after completion of 20 years of contributory participation. Benefits are provided under PERS but are only available to members who are classified as correctional officers.
    
    An actuarial cost study was not completed since these provisions violate the restrictions for PERS under 2005 Pension Reform. If costs are to be completed at a future date, then census information for members qualifying for such improved retirement eligibility must be provided to the Actuary.



Memorandum


    The concept of providing unreduced retirement benefits under PERS for a select subgroup of members is contrary to the underlying philosophy of PERS as a multiple employer cost sharing plan. Cost sharing funding only works when identical benefits are generally provided to all members. Failure due to Plan design of this underlying philosophy in PERS would result in significant employer subsidies being charged to all other PERS employers (both state and non-state) for the sole benefit of the correctional member group.
    
    It is recommended by the Actuary that if improved benefits for corrections is desired, that a spin-off plan similar to Deputy Sheriffs or Emergency Medical Services be considered in place of this Bill. It should be noted that significant member and employer contributions would be expected as a result of the improved unreduced retirement benefits. A final cost analysis can only be completed once the provisions of such plan are provided in a bill and a complete census of covered correctional members is provided to the Actuary.



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