Actuarial Fiscal Note

Date Requested:January 23, 2023
Time Requested:04:06 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
3003 Introduced SB420
CBD Subject: Governor -- Bills Requested By

Retirement Systems Impacted by Legislation:

PERS 2501 and TRS 2600

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

PERS and TRS



Actuarial Note Summary

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


    The bill provides a one-time bonus payment to current PERS and TRS retirants (or, if applicable, his or her beneficiary) at least age 70 on July 1, 2023 that has at least 20 years of total service and their monthly retirement benefit is less than $1,000. The one-time bonus payment shall equal $1,500.
    
    Using data as of the valuation date July 1, 2022, the PERS participants that meet the requirements of the one-time bonus payment include 1,339 service retirees, 131 disabled retirees, and 772 beneficiaries. For the beneficiaries, 367 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%. Therefore, these beneficiaries are receiving ½ of the amount originally paid to the retiree and correspondingly a beneficiary in this group would receive ½ of the bonus payment or $750.
    
    Using data as of the valuation date July 1, 2022, the TRS participants that meet the requirements of the one-time bonus payment include 1,868 service retirees, 236 disabled retirees, and 726 beneficiaries. For the beneficiaries, 404 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%. Therefore, these beneficiaries are receiving ½ of the amount originally paid to the retiree and correspondingly a beneficiary in this group would receive ½ of the bonus payment or $750.
    
    For PERS, there are approximately 2,242 retirees and beneficiaries that will receive a bonus payment with a total payout of approximately $3.1 million. The $3.1 million increase in unfunded liability can be paid immediately or amortized over 6 years on a level dollar basis through an increase in the annual required contribution for PERS of approximately $600,000.
    
    For TRS, there are approximately 2,830 retirees and beneficiaries that will receive a bonus payment with a total payout of approximately $3.9 million. The $3.9 million increase in unfunded liability can be paid immediately or amortized over 6 years on a level dollar basis through an increase in the annual required contribution for TRS of approximately $800,000.
    
    The bill also provides a $1,000 per month minimum benefit for current PERS and TRS retirants (or, if applicable, his or her beneficiary) at least age 70 on July 1, 2023 that has at least 25 years of total service and currently receiving a benefit less than $1,000 per month.
    
    Using data as of the valuation date July 1, 2022, for PERS if we limit the $1,000 per month minimum benefit to participants in pay status at least 70 years of age as of July 1, 2023 with at least 25 years of total service, then the increase in actuarial liability will be around $7.0 million, calculated as of the most recent valuation date, July 1, 2022. Amortizing this liability increase over 6 years on a level dollar basis would increase the annual required contribution for PERS by approximately $1.4 million. The participant counts in this scenario are 410 service retirees, 17 disabled retirees, and 192 beneficiaries. For the group of beneficiaries, 33 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%, therefore, we used a minimum benefit of $500 per month for this group of beneficiaries.
    
    Using data as of the valuation date July 1, 2022, for TRS if we limit the $1,000 per month minimum benefit to participants in pay status at least 70 years of age as of July 1, 2023 with at least 25 years of total service, then the increase in actuarial liability will be around $10.3 million, calculated as of the most recent valuation date, July 1, 2022. Amortizing this liability increase over 6 years on a level dollar basis would increase the annual required contribution for TRS by approximately $2.1 million. The participant counts in this scenario are 638 service retirees, 55 disabled retirees, and 240 beneficiaries. For the group of beneficiaries, 58 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%, therefore, we used a minimum benefit of $500 per month for this group of beneficiaries.
    
    The service used in the eligibility conditions above is total service which includes non-contributory service based on unused leave and military service which has been converted into additional service.
    
    TRS participants in pay status who were also participants in TIAA-CREF, and their contributions were capped based on a maximum salary of $4,800 in TRS pursuant to WV Code § 18-7A-26(c) were excluded from the analysis irrespective of their service. In addition, alternate payees from a Qualified Domestic Relations Order (QDRO) were excluded from the analysis.
    
    Also, the analysis is as of July 1, 2022 and if we determine the liability at a different date then the number of participants included in this actuarial note and the actuarial cost of the bill will change.
    



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 $24,300,000.00 $4,900,000.00 0.29 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $24,300,000.00 $4,900,000.00 0.29 %
Fiscal Year Past Service
Amortization Period Ends
N/A 2028 N/A


Explanation of above Actuarial estimates:


    The bill would increase the unfunded liability of PERS and TRS combined by approximately $24.3 million. Amortizing the unfunded liability over 6 years on a level dollar basis would increase the annual employer contribution by $4.9 million for PERS and TRS combined.
    
    Since the one-time bonus and minimum benefit only impact a subgroup of current PERS and TRS retirants and beneficiaries, there is no impact on the normal cost.
    
    Regarding the one-time bonus, the actuarial accrued liability increase is equal to the total of the expected bonus payments for PERS and TRS. Funding the entire one-time bonus payment is actuarially recommended at $7.0 million. Under the actuarially required contribution, the one-time bonus payment may be funded over 6 years in the amount of $1.4 million per year for FY 2023 through FY 2028. The annual increase in the actuarially required contribution amount from the one-time bonus would be $600,000 for PERS and $800,000 for TRS.
    
    Regarding the minimum benefit, the actuarial accrued liability increase is approximately $17.3 million. The $17.3 million increase in the unfunded liability can be funded immediately or through an increase in the actuarially required contribution for PERS and TRS. Under the actuarially required contribution, the increase in unfunded liability due to the minimum benefit may be funded over 6 years in the amount of $3.5 million per year for FY 2023 through FY 2028. The annual increase in the actuarially required contribution amount from the minimum benefit would be $1.4 million for PERS and $2.1 million for TRS.
    

Analysis of Impact on Public Pension Policy:


    The benefit improvements for existing retirants and beneficiaries provided by the bill are within the requirements imposed by the West Virginia 2005 Pension Reform.



Fiscal Note Summary


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


    The bill provides a one-time bonus payment to current PERS and TRS retirants (or, if applicable, his or her beneficiary) at least age 70 on July 1, 2023 that has at least 20 years of total service and their monthly retirement benefit is less than $1,000. The one-time bonus payment shall equal $1,500.
    
    Using data as of the valuation date July 1, 2022, the PERS participants that meet the requirements of the one-time bonus payment include 1,339 service retirees, 131 disabled retirees, and 772 beneficiaries. For the beneficiaries, 367 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%. Therefore, these beneficiaries are receiving ½ of the amount originally paid to the retiree and correspondingly a beneficiary in this group would receive ½ of the bonus payment or $750.
    
    Using data as of the valuation date July 1, 2022, the TRS participants that meet the requirements of the one-time bonus payment include 1,868 service retirees, 236 disabled retirees, and 726 beneficiaries. For the beneficiaries, 404 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%. Therefore, these beneficiaries are receiving ½ of the amount originally paid to the retiree and correspondingly a beneficiary in this group would receive ½ of the bonus payment or $750.
    
    For PERS, there are approximately 2,242 retirees and beneficiaries that will receive a bonus payment with a total payout of approximately $3.1 million.
    The $3.1 million increase in unfunded liability can be paid immediately or amortized over 6 years on a level dollar basis through an increase in the annual required contribution for PERS of approximately $600,000.
    
    For TRS, there are approximately 2,830 retirees and beneficiaries that will receive a bonus payment with a total payout of approximately $3.9 million.
    The $3.9 million increase in unfunded liability can be paid immediately or amortized over 6 years on a level dollar basis through an increase in the annual required contribution for TRS of approximately $800,000.
    
    The bill also provides a $1,000 per month minimum benefit for current PERS and TRS retirants (or, if applicable, his or her beneficiary) at least age 70 on July 1, 2023 that has at least 25 years of total service and currently receiving a benefit less than $1,000 per month.
    
    Using data as of the valuation date July 1, 2022, for PERS if we limit the $1,000 per month minimum benefit to participants in pay status at least 70 years of age as of July 1, 2023 with at least 25 years of total service, then the increase in actuarial liability will be around $7.0 million, calculated as of the most recent valuation date, July 1, 2022. Amortizing this liability increase over 6 years on a level dollar basis would increase the annual required contribution for PERS by approximately $1.4 million. The participant counts in this scenario are 410 service retirees, 17 disabled retirees, and 192 beneficiaries. For the group of beneficiaries, 33 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%, therefore, we used a minimum benefit of $500 per month for this group of beneficiaries.
    
    Using data as of the valuation date July 1, 2022, for TRS if we limit the $1,000 per month minimum benefit to participants in pay status at least 70 years of age as of July 1, 2023 with at least 25 years of total service, then the increase in actuarial liability will be around $10.3 million, calculated as of the most recent valuation date, July 1, 2022. Amortizing this liability increase over 6 years on a level dollar basis would increase the annual required contribution for TRS by approximately $2.1 million. The participant counts in this scenario are 638 service retirees, 55 disabled retirees, and 240 beneficiaries. For the group of beneficiaries, 58 are receiving a benefit based on the original retiree benefit form of payment Joint and Survivor 50%, therefore, we used a minimum benefit of $500 per month for this group of beneficiaries.
    
    The service used in the eligibility conditions above is total service which includes non-contributory service based on unused leave and military service which has been converted into additional service.
    
    TRS participants in pay status who were also participants in TIAA-CREF, and their contributions were capped based on a maximum salary of $4,800 in TRS pursuant to WV Code § 18-7A-26(c) were excluded from the analysis irrespective of their service. In addition, alternate payees from a Qualified Domestic Relations Order (QDRO) were excluded from the analysis.
    
    Also, the analysis is as of July 1, 2022 and if we determine the liability at a different date then the number of participants included in this actuarial note and the actuarial cost of the bill will change.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2023
Increase/Decrease
(use"-")
2024
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 4,900,000 4,900,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 4,900,000 4,900,000
2. Estimated Total Revenues 0 0 0


Explanation of above Fiscal Note estimates (include possible long-range effect):


    The bill would increase the unfunded liability of PERS and TRS combined by approximately $24.3 million. Amortizing the unfunded liability over 6 years on a level dollar basis would increase the annual employer contribution by $4.9 million for PERS and TRS combined.
    
    Since the one-time bonus and minimum benefit only impact a subgroup of current PERS and TRS retirants and beneficiaries, there is no impact on the normal cost.
    
    Regarding the one-time bonus, the actuarial accrued liability increase is equal to the total of the expected bonus payments for PERS and TRS. Funding the entire one-time bonus payment is actuarially recommended at $7.0 million. Under the actuarially required contribution, the one-time bonus payment may be funded over 6 years in the amount of $1.4 million per year for FY 2023 through FY 2028. The annual increase in the actuarially required contribution amount from the one-time bonus would be $600,000 for PERS and $800,000 for TRS.
    
    Regarding the minimum benefit, the actuarial accrued liability increase is approximately $17.3 million. The $17.3 million increase in the unfunded liability can be funded immediately or through an increase in the actuarially required contribution for PERS and TRS. Under the actuarially required contribution, the increase in unfunded liability due to the minimum benefit may be funded over 6 years in the amount of $3.5 million per year for FY 2023 through FY 2028. The annual increase in the actuarially required contribution amount from the minimum benefit would be $1.4 million for PERS and $2.1 million for TRS.
    



Memorandum


    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by the CPRB Actuary. Both the Board and the CPRB Actuary are available upon request for questions.
    
    For the appropriate actuarial disclosures, see the July 1, 2022 funding valuation reports for PERS and TRS, expected to be available on March 31, 2023.
    
    In particular, future actuarial measurements may differ significantly from current measurements due to System experience differing from that anticipated by the economic and demographic assumptions, changes expected as part of the natural operation of the methodology used for these measurements, and changes in system provisions or applicable law or regulations.
    
    Actuarial Standard of Practice No. 51 (“ASOP 51”) requires certain disclosures of potential risks to the Plan and provides useful information for intended users of actuarial reports that determine plan contributions or evaluate the adequacy of specified contribution levels to support benefit payments. Providing a $1,000 minimum monthly benefit for a subgroup of current PERS and TRS retirees or providing a $1,500 one-time bonus payment to a subgroup of current PERS and TRS retirees is not expected to adversely affect the funding of PERS and TRS.
    
    Kenneth Woodson Jr., the CPRB Board Actuary, is a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. He meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this Actuarial/Fiscal Note.
    



    Person submitting Fiscal Note: Kenneth M. Woodson Jr.
    Email Address: kenneth.m.woodson@wv.gov