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 ( c ) prohibits new benefits being granted to any active members of TRS. See the Pension Committee chairman for details.
    
    The bill opens a new window for a select group of active members to purchase “make up contribution service” from TDC under TRS. Purchasing members must pay a make up contribution of 1.5% of pay plus interest at 7.5%. It is estimated that for the average purchasing member, the actuarial accrued liability under TRS will exceed the make up contribution amount by $50,000. It is estimated that approximately 100 members will take advantage of the new window resulting in an increase in the TRS Unfunded Actuarial Accrued Liabilities of $5,000,000. Based on 10 year amortization, the expected impact on the TRS Actuarially Required Contribution is $703,000 per year.
    
    It is noted that final actuarial costs will be determined based on final usage numbers which could be greater or lower than this estimate.



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 $5,000,000.00 $703,000.00 0.01 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $5,000,000.00 $703,000.00 0.01 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2022 N/A


Explanation of above estimates:


    Cost estimates are based on the analysis performed at the original TDC to TRS transfer window.
    
    The estimate of 100 electing members is deemed reasonable based upon the limited eligibility in the Bill. If the member eligibility requirements are expanded to allow additional eligibility, then a significant increase in estimated electing members will greatly increase the costs of the bill.

Analysis of Impact on Public Pension Policy:


    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) prohibits new benefits be granted to any active members of TRS.
    
    To implement the bill, it must be amended to exempt this specific increase from the 2005 Pension Reform limitations. The fiscal and political impact of such an exemption should be considered by the legislature.
    
    The new election window subjects the benefit process to adverse selection. This issue was specifically considered in the initial legislation which is why a cut off date to make such elections was implemented.



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 ( c ) prohibits new benefits being granted to any active members of TRS. See the Pension Committee chairman for details.
    
    The bill opens a new window for a select group of active members to purchase “make up contribution service” from TDC under TRS. Purchasing members must pay a make up contribution of 1.5% of pay plus interest at 7.5%. It is estimated that for the average purchasing member, the actuarial accrued liability under TRS will exceed the make up contribution amount by $50,000. It is estimated that approximately 100 members will take advantage of the new window resulting in an increase in the TRS Unfunded Actuarial Accrued Liabilities of $5,000,000. Based on 10 year amortization, the expected impact on the TRS Actuarially Required Contribution is $703,000 per year.
    
    It is noted that final actuarial costs will be determined based on final usage numbers which could be greater or lower than this estimate.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2012
Increase/Decrease
(use"-")
2013
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 703,000 703,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 703,000 703,000
2. Estimated Total Revenues 0 0 0


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


    Cost estimates are based on the analysis performed at the original TDC to TRS transfer window.
    
    The estimate of 100 electing members is deemed reasonable based upon the limited eligibility in the Bill. If the member eligibility requirements are expanded to allow additional eligibility, then a significant increase in estimated electing members will greatly increase the costs of the bill.



Memorandum


    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) prohibits new benefits be granted to any active members of TRS.
    
    To implement the bill, it must be amended to exempt this specific increase from the 2005 Pension Reform limitations. The fiscal and political impact of such an exemption should be considered by the legislature.
    
    The new election window subjects the benefit process to adverse selection. This issue was specifically considered in the initial legislation which is why a cut off date to make such elections was implemented.



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