Actuarial Fiscal Note

Date Requested:March 02, 2018
Time Requested:03:41 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
1687 Comm. Sub. HB4145
CBD Subject: Governor -- Bills Requested By

Retirement Systems Impacted by Legislation:

SPTA 2392, SPTB 2393, TRS 2600, (PERS 2501)

FUND(S):

General Fund

Sources of Revenue:

Increases Existing Expenses

Legislation creates:

SPTA, SPTB, TRS, (PERS)



Actuarial Note Summary


Impact this measure will have on the liabilities and contributions associated with the retirement system(s).


    The CPRB has been instructed to determine the impact to the public pension plans of an across-the-board 5% salary increase (effective July 1, 2018) to State Police officers, as well as 5% salary increases (effective July 1, 2018) to teachers and service personnel who participate in TRS (similar to the provisions of House Bill 4145 as it existed on March 2, 2018). In addition, the CPRB has been instructed to also analyze the impact of a 3% pay raise (effective July 1, 2018) to all State employees, which (as of March 2, 2018) was expected to be part of the Budget Bill.
    
    For State Police Plan A, the additional Normal Cost expected to the plan for FY2019 would be approximately $40,000, with an additional $213,000 in amortization payment required in FY2019 in order to pay off the increase in July 1, 2017 Unfunded Actuarial Accrued Liability (UAAL), which would be $1,030,000.
    
    For State Police Plan B, the Normal Cost for FY2019 would be expected to increase by $162,000, and the UAAL for FY2019 would be expected to increase by $1,079,000 to amortize the increase of approximately $7,139,000 to the July 1, 2017 UAAL. This increase would suggest that the employer contribution rate for FY2019 should be increased from its current rate of 14% to at least 17.5%.
    
    For PERS, an increase of 3% to the salaries of state employees would be expected to result in an increase in FY2019 Normal Cost of approximately $804,000. The July 1, 2017 UAAL would be expected to increase by $50,560,000, with the FY2019 amortization payment increased by approximately $5,024,000. The contribution rate of 10.0%, which will begin July 1, 2018, would be sufficient to pay for the additional cost to the plan.
    
    For TRS, the Normal Cost for FY2019 would be expected to increase by approximately $2,424,000, and the amortization payment of the estimated additional $117,683,000 UAAL would be $13,348,000 for FY2019. The School Aid Formula (actual dollars required by the State) would increase from $407,259,000 to $421,794,000 for FY2019 (an increase of $14,535,000).
    
    Overall, the proposed 5% salary increases for Plan A and TRS members would increase the FY2019 required state contributions by approximately $14,788,000. The salary increases for Plan B members would necessitate an increased employer contribution rate of 17.5% from its current 14%. The 10% employer contribution rate to PERS, which is scheduled to take effect on July 1, 2018, is believed to be sufficient to pay for the proposed additional 3% salary increase for state employees.
    



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 $176,412,000.00 $16,029,000.00 0.33 %
Normal Cost of System N/A $2,626,000.00 0.07 %
Past Service Liabilities $176,412,000.00 $14,640,000.00 0.26 %
Fiscal Year Past Service
Amortization Period Ends
N/A 2034 N/A


Explanation of above estimates:


    The increases in Normal Cost and amortization payments are expected to start in the Fiscal Year beginning July 1, 2019, unless the Consolidated Public Retirement Board chooses to change the required contributions for the Fiscal Year beginning July 1, 2018. However, that is not likely based upon the necessity of participating contributing employers to have budgets in place for the FY2019 well in advance.
    The estimated increase to annual Normal Cost will remain as part of each plan’s annual cost as long as there are members in the plan who are accruing benefits. The increased payments toward amortizing the unfunded liabilities of the plans will remain as part of the annual cost through the lifetime of the amortization period for each plan. In PERS that date is FY2035, in TRS the date is FY2034, in Plan A the date is FY2025, and in Plan B the date is FY2026.
    
    Estimates given are based upon actuarial valuation results as of July 1, 2017, using assumptions specified in the July 1, 2016, actuarial valuation reports, other than certain changes in demographic assumptions used for Plan A and Plan B, which were summarized in a report prepared for the Board in October of 2017. These estimates are based upon assumptions regarding future events, which may or may not materialize. Future measurements may differ significantly due to plan experience differing from that anticipated by these assumptions, by the natural operation of the methodology used for these measurements, or by changes to plan provisions.
    

Analysis of Impact on Public Pension Policy:


    The costs presented in this Actuarial/Fiscal note only represent those incurred as they relate to the defined benefit pension plans to which the affected members belong. They do not represent any of the costs associated with the actual salary increases. Note that the impact of the additional contribution required to the TDC plan has not been contemplated as part of the analysis presented in this Actuarial/Fiscal Note, apart from its inclusion in the calculation of the State School Aid Formula reimbursement for pension costs.



Fiscal Note Summary


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


    The CPRB has been instructed to determine the impact to the public pension plans of the state of an across-the-board 5% salary increase (effective July 1, 2018) to State Police officers, as well as 5% salary increases (effective July 1, 2018) to teachers and service personnel who participate in TRS (similar to the provisions of House Bill 4145 as it existed on March 2, 2018). In addition, the CPRB has been instructed to also analyze the impact of a 3% pay raise (effective July 1, 2018) to all State employees, which (as of March 2, 2018) was expected to be part of the Budget Bill.
    
    For State Police Plan A, the additional Normal Cost expected to the plan for FY2019 would be approximately $40,000, with an additional $213,000 in amortization payment required in FY2019 in order to pay off the increase in July 1, 2017 Unfunded Actuarial Accrued Liability (UAAL), which would be $1,030,000.
    
    For State Police Plan B, the Normal Cost for FY2019 would be expected to increase by $162,000, and the UAAL for FY2019 would be expected to increase by $1,079,000 to amortize the increase of approximately $7,139,000 to the July 1, 2017 UAAL. This increase would suggest that the employer contribution rate for FY2019 should be increased from its current rate of 14% to at least 17.5%.
    
    For PERS, an increase of 3% to the salaries of state employees would be expected to result in an increase in FY2019 Normal Cost of approximately $804,000. The July 1, 2017 UAAL would be expected to increase by $50,560,000, with the FY2019 amortization payment increased by approximately $5,024,000. The contribution rate of 10.0%, which will begin July 1, 2018, would be sufficient to pay for the additional cost to the plan.
    
    For TRS, the Normal Cost for FY2019 would be expected to increase by approximately $2,424,000, and the amortization payment of the estimated additional $117,683,000 UAAL would be $13,348,000 for FY2019. The School Aid Formula (actual dollars required by the State) would increase from $407,259,000 to $421,794,000 for FY2019 (an increase of $14,535,000).
    
    Overall, the proposed 5% salary increases for Plan A and TRS members would increase the FY2019 required contributions by approximately $14,788,000. The salary increases for Plan B members would necessitate an increased employer contribution rate of 17.5% from its current 14%. The 10% employer contribution rate to PERS, which is scheduled to take effect on July 1, 2018, is believed to be sufficient to pay for the proposed additional 3% salary increase.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 16,029,000 16,029,000
Personal Services 0 0 0
Current Expenses 0 16,029,000 16,029,000
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 increases in Normal Cost and amortization payments are expected to start in the Fiscal Year beginning July 1, 2019, unless the Consolidated Public Retirement Board chooses to change the required contributions for the Fiscal Year beginning July 1, 2018. However, that is not likely based upon the necessity of participating contributing employers to have budgets in place for the FY2019 well in advance.
    The estimated increase to annual Normal Cost will remain as part of each plan’s annual cost as long as there are members in the plan who are accruing benefits. The increased payments toward amortizing the unfunded liabilities of the plans will remain as part of the annual cost through the lifetime of the amortization period for each plan. In PERS that date is FY2035, in TRS the date is FY2034, in Plan A the date is FY2025, and in Plan B the date is FY2026.
    
    Estimates given are based upon actuarial valuation results as of July 1, 2017, using assumptions set forth in the July 1, 2016, actuarial valuation reports, other than certain changes in demographic assumptions used for Plan A and Plan B, which were summarized in a report prepared for the Board in October of 2017. These estimates are based upon assumptions regarding future events, which may or may not materialize. Future measurements may differ significantly due to plan experience differing from that anticipated by these assumptions, by the natural operation of the methodology used for these measurements, or by changes to plan provisions.
    



Memorandum


    The costs presented in this Actuarial/Fiscal note only represent those incurred as they relate to the defined benefit pension plans to which the affected members belong. They do not represent any of the costs associated with the actual salary increases. Note that the impact of the additional contribution required to the TDC plan has not been contemplated as part of the analysis presented in this Actuarial/Fiscal Note, apart from its inclusion in the calculation of the State School Aid Formula reimbursement for pension costs.
    
    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by a qualified actuary. Both the Board and the actuary are available upon request for questions.
    



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