Actuarial Fiscal Note

Date Requested:February 22, 2017
Time Requested:08:16 AM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2624 Introduced SB371
CBD Subject: Education (K12), Retirement

Retirement Systems Impacted by Legislation:

TRS

FUND(S):

TRS 2600

Sources of Revenue:

General Fund,Other Fund Local governments

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 provisions of SB 371 require that the retirement board adopt smoothing of actuarial gains and losses on TRS assets using a four-year smoothing method with no corridor as an actuarial assumption for funding valuation performed after June 30, 2016. This would retroactively affect the July 1, 2016 Actuarial Valuation for TRS, resulting in a reduction in the Unfunded Actuarial Accrued Liability of $393,194,000. The effect would be a reduction on the employer contribution for FY2018 by $43,213,000, or approximately 3.14% of payroll.



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 ($393,194,000.00) ($43,213,000.00) -3.14 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities ($393,194,000.00) ($43,213,000.00) -3.14 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2034 N/A


Explanation of above Actuarial estimates:


    The provisions of the bill result in no change to the Normal Cost of the plan. The Unfunded Actuarial Accrued Liability (UAAL) would be measured using Actuarial Value of assets using the proposed smoothing method, resulting in a decrease in the UAAL of $393,194,000. As a result, the required contribution for FY2018 would decrease by $43,213,000. Ultimately, implementation of asset smoothing will have no long-term effect on annual costs to TRS.
    
    Cost estimates are based on the July 1, 2016 Actuarial Valuation for Funding as completed by Conduent on behalf of the WV CPRB.
    

Analysis of Impact on Public Pension Policy:


    The Consolidated Public Retirement Board has used Actuarial Smoothing in PERS as an actuarial assumption for funding valuations effective with the July 1, 2009 valuation. The proposed smoothing method uses the same methodology as is currently used in PERS, and is allowable under Actuarial Standards of Practice.



Fiscal Note Summary


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


    The provisions of SB 371 require that the retirement board adopt smoothing of actuarial gains and losses on TRS assets using a four-year smoothing method with no corridor as an actuarial assumption for funding valuation performed after June 30, 2016. This would retroactively affect the July 1, 2016 Actuarial Valuation for TRS, resulting in a reduction in the Unfunded Actuarial Accrued Liability of $393,194,000. The effect would be a reduction on the employer contribution for FY2018 by $43,213,000, or approximately 3.14% of payroll.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 -43,213,000 0
Personal Services 0 0 0
Current Expenses 0 -43,213,000 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 Fiscal Note estimates (include possible long-range effect):


    The provisions of the bill result in no change to the Normal Cost of the plan, nor does the bill impact any administrative expenses for the plan. The Unfunded Actuarial Accrued Liability (UAAL) would be measured using Actuarial Value of assets using the proposed smoothing method, resulting in a decrease in the UAAL of $393,194,000. As a result, the required contribution for FY2018 would decrease by $43,213,000. Ultimately, implementation of asset smoothing will have no long-term effect on annual costs to TRS.
    Cost estimates are based on the July 1, 2016 Actuarial Valuation for Funding as completed by Conduent on behalf of the WV CPRB.
    



Memorandum


    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by a qualified actuary, and a letter of certification is available from the CPRB upon request.



    Person submitting Fiscal Note: Melody Bailey, Actuarial Analyst, WVCPRB
    Email Address: melody.j.bailey@wv.gov