Actuarial Fiscal Note


Retirement Systems Impacted by Legislation:

Judges Retirement System

FUND(S):

JRS 2140

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).


    The bill provides for a reduction in the member contribution rate effective July 1, 2013. The rate shall be reduced from 10.5% to 7% of member compensation.
    
    Effective July 1, 2014 and after, the CPRB Board shall set the member rate for the coming year based on the results of the actuarial valuation prepared by the State Actuary. The rate shall be no less than 7% and not more than 10.5%.
    
    The initial reduction to 7% for FY 2014 results in an increase of $324,000 in the employer Normal Cost contribution. The amount is based on the current funding policy of contributing the Normal Cost while the plan remains at full funding.
    
    Judges salary increases require legislation to be passed providing a salary increase. The annual cost relative to the member contribution reduction to 7% therefore is unchanged until legislation is passed. Based on the actuarial assumptions being met, the member contribution rate is expected to remain at 7%.



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 $0.00 $324,000.00 3.50 %
Normal Cost of System N/A $324,000.00 3.50 %
Past Service Liabilities $0.00 $0.00 0.00 %
Fiscal Year Past Service
Amortization Period Ends
N/A N/A


Explanation of above estimates:


    The change in Employer Normal Cost is the result of the reduction in Member paid Normal Cost increasing the Employer Normal Cost. There is no increase in retirement benefits under the bill which results in no increase in Actuarial Accrued Liabilities.
    
    Since the plan is currently fully funded, it will remain fully funded under the bill.

Analysis of Impact on Public Pension Policy:


    The current Member Contribution rate of 10.5% is on the high side for plans whose members are covered under Social Security. The high contribution rate has been one of the contributing factors resulting in 11 judges eligible for JRS transfer electing to remain in PERS. Transfers into JRS after years of PERS participation is expected to result in issues regarding the significant transfer contributions that will be required.
    
    The reduced 7% member contribution rate is expected to encourage some of the eligible JRS judges to transfer from PERS to JRS.



Fiscal Note Summary


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


    The bill provides for a reduction in the member contribution rate effective July 1, 2013. The rate shall be reduced from 10.5% to 7% of member compensation.
    
    Effective July 1, 2014 and after, the CPRB Board shall set the member rate for the coming year based on the results of the actuarial valuation prepared by the State Actuary. The rate shall be no less than 7% and not more than 10.5%.
    
    The initial reduction to 7% for FY 2014 results in an increase of $324,000 in the employer Normal Cost contribution. The amount is based on the current funding policy of contributing the Normal Cost while the plan remains at full funding.
    
    Judges salary increases require legislation to be passed providing a salary increase. The annual cost relative to the member contribution reduction to 7% therefore is unchanged until legislation is passed. Based on the actuarial assumptions being met, the member contribution rate is expected to remain at 7%.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2013
Increase/Decrease
(use"-")
2014
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 324,000 324,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 324,000 324,000
2. Estimated Total Revenues 0 0 0


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


    The change in Employer Normal Cost is the result of the reduction in Member paid Normal Cost increasing the Employer Normal Cost. There is no increase in retirement benefits under the bill which results in no increase in Actuarial Accrued Liabilities.
    
    Since the plan is currently fully funded, it will remain fully funded under the bill.



Memorandum


    The current Member Contribution rate of 10.5% is on the high side for plans whose members are covered under Social Security. The high contribution rate has been one of the contributing factors resulting in 11 judges eligible for JRS transfer electing to remain in PERS. Transfers into JRS after years of PERS participation is expected to result in issues regarding the significant transfer contributions that will be required.
    
    The reduced 7% member contribution rate is expected to encourage some of the eligible JRS judges to transfer from PERS to JRS.



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