Actuarial Fiscal Note


Retirement Systems Impacted by Legislation:

Public Employees Retirement System

FUND(S):

PERS 2510

Sources of Revenue:

Other Fund State and Local Govts

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 PERS benefit formula for new members first hired July 1, 2013 and after. The final average pay in the formula is reduced from final 3 year average to final 10 year average in the last 15 years.
    
    The Normal Cost and Actuarial Accrued Liabilities for all current member is unchanged.
    
    The Normal Cost for those hired July 1, 2013 and after is expected to be 1.24% of payroll less than the Normal Cost for current members. The savings is dependent on the rate at which new hires enter PERS on and after July 1, 2013.



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 $0.00 0.00 %
Normal Cost of System N/A $0.00 0.00 %
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 expected reduction 1.24% of annual pay in the Employer Normal Cost is based upon projections from the PERS July 1, 2012 Actuarial Valuation. New hires were projected to be consistent with current average participant demographics. The value of the reduction from Final 3 Year Average Pay to Final 10 Year Average Pay is based on a 4% average salary increase assumption.

Analysis of Impact on Public Pension Policy:


    This bill reduces the recognition of inflation in the PERS benefit formula. The change provides a 12% reduction in expected benefits for new hires on and after July 1, 2013.



Fiscal Note Summary


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


    The bill provides for a reduction in the PERS benefit formula for new members first hired July 1, 2013 and after. The final average pay in the formula is reduced from final 3 year average to final 10 year average in the last 15 years.
    
    The Normal Cost and Actuarial Accrued Liabilities for all current member is unchanged.
    
    The Normal Cost for those hired July 1, 2013 and after is expected to be 1.24% of payroll less than the Normal Cost for current members. The savings is dependent on the rate at which new hires enter PERS on and after July 1, 2013.



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 -685,000 -2,100,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 -685,000 -2,100,000
2. Estimated Total Revenues 0 0 0


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


    The expected reduction 1.24% of annual pay in the Employer Normal Cost is based upon projections from the PERS July 1, 2012 Actuarial Valuation. New hires were projected to be consistent with current average participant demographics. The value of the reduction from Final 3 Year Average Pay to Final 10 Year Average Pay is based on a 4% average salary increase assumption.



Memorandum


    This bill reduces the recognition of inflation in the PERS benefit formula. The change provides a 12% reduction in expected benefits for new hires on and after July 1, 2013.



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