Actuarial Fiscal Note

Date Requested:January 17, 2024
Time Requested:10:01 AM

2057	Introduced	SB439
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Retirement

Retirement Systems Impacted by Legislation:

PERS 2501 and EMSRS 2615

FUND(S):

Other Fund

Sources of Revenue:

Local Governments Creates New Expense

Legislation creates:

PERS and EMSRS

Actuarial Note Summary

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

    SB 439 would allow PERS 911 Operators to transfer from PERS to EMSRS. As of July 1, 2022, there are approximately 721 PERS 911 Operators and SB 439 would give these members the option to transfer all their PERS service to EMSRS.

    The Bill has the following participation requirement:

    911 personnel, employed by a participating public employer, who are actively contributing members of the Public Employees Retirement System shall be eligible to participate in a vote directly to the board pursuant to §16-5V-6c (c): Provided, that the 911 personnel are employed with a participating public employer in the month prior to the election and for the duration of the election and that their participating public employer does not choose to opt-out of this option to transfer existing employees. The election period for the vote shall conclude on August 30, 2024. All election forms received by the board on or before August 30, 2024, shall be counted, and any members eligible to vote who do not submit an election form to the board prior to or on August 30, 2024, shall be counted as not electing to transfer to the plan. If at least 75 percent of members eligible to vote pursuant to subsection §16-5V-6c (b) affirmatively elect to transfer to the plan within the period provided in subsection §16-5V-6c (c), then the board shall notify the employers of all members who affirmatively elected to do so during that period, and contributions to plan shall begin during October 2024 for those electing to transfer. If more than 25 percent of those members eligible to vote pursuant to §16-5V-6c (b) do not affirmatively elect to transfer to the plan within that period, the Public Employees Retirement System continues as the retirement system for all 911 members eligible to vote.

    Any costs incurred by the board associated with the election to transfer shall be borne by all 911 personnel employers of persons eligible to transfer in proportion to the number of persons employed by that employer who are eligible to transfer. The estimated cost to provide the elections to eligible PERS 911 Operators is $15,000.

    Furthermore, the bill clarifies that any administrative costs to the CPRB associated with the transfer of PERS 911 Operators to EMSRS shall be borne by the participating employers of the transferring members, in relative proportion to the number of members employed. The estimated administrative costs associated with the 911 Operators transferring to EMSRS is a one-time cost of $1,200,000 to update the CPRB administrative software, a one-time cost of $25,000 to calculate and provide the make-up contribution quote to 911 Operators that transfer to EMSRS, plus a new position at the CPRB would need to be created due to the increased complexity to EMSRS. This new position would cost $35,000 per year in salary expense.


    The benefit formula in EMSRS for the transferring 911 Operators depends on their PERS non-911 service and if they provide a make-up contribution to EMSRS.

    Specifically, for 911 Operators that transfer service from PERS to EMSRS and do not elect to provide a make-up contribution to EMSRS, "Accrued Benefit" means, on behalf of the transferring member, two percent per year of the member's final average salary for all credited service that was credited because of transferred assets. Additionally, two and three-quarter percent for the first 20 years of new credited service earned from date of membership in EMSRS will be credited. Additionally, two percent per year for 21 through 25 years of new credited service earned from date of membership in this plan and one and one-half percent per year for each year over 25 years earned from date of membership in this plan will be credited with a maximum benefit of 90 percent of final average salary.

    For 911 Operators that transfer service from PERS to EMSRS and elect to provide a make-up contribution to EMSRS, "Accrued Benefit" means, on behalf of the member two percent per year of the member's final average salary for all non-911 credited service that was credited as a result of transferred assets. Additionally, two and three-quarter percent for the first 20 years of 911 credited service will be credited. Additionally, two percent per year for 21 through 25 years of 911 credited service and one and one-half percent per year for each year over 25 years of 911 credited service will be credited. A maximum benefit of 90 percent of a member’s final average salary may be paid.

    If a PERS 911 Operator elects to transfer their PERS service to EMSRS, the assets that would transfer from PERS to EMSRS is outlined in §16-5V-6d (c). Basically, the assets transferred to EMSRS would be equal to the PERS actuarial accrued liability of the transferring 911 Operators, multiplied by the active funded position of PERS, calculated as of July 1, 2023, using the PERS data, assumptions and plan provisions from the July 1, 2023, PERS funding valuation, and this amount is adjusted by applying interest at 7.25% per year from July 1, 2023 to the asset transfer date. For each 911 Operator transferring from PERS to EMSRS, the CPRB shall transfer the assets from PERS to EMSRS no later than December 31, 2024.

    The make-up contribution to EMSRS is defined in §16-5V-6d (e) as follows:

    (1) Compute the contributions made by each 911 personnel for eligible 911 years under the Public Employees’ Retirement System (PERS)

    (2) Compute the contributions that would have been required under the
     Emergency Medical Services Retirement System (EMSRS) for eligible
     911 years.

    (3) Compute the difference with interest that each 911 personnel would have been required to pay had he or she originally participated in EMSRS for eligible 911 years.


    The Consolidated Public Retirement Board (CPRB) shall provide a quote of the make-up contribution outlined above, to each 911 Operator who has timely elected to transfer from PERS to EMSRS. The quote shall be provided to the member within 60 days of the board’s receipt of the written request and the employer’s verification of 911 service.

    This actuarial/fiscal note determines the actuarial cost to EMSRS from this bill under two scenarios, however, the tables in this actuarial/fiscal note show only the numbers from scenario 2.

    For each scenario the list of PERS 911 Operators eligible to transfer from PERS to EMSRS was provided by the West Virginia 911 Council. The list includes 911 Operators from 51 West Virginia counties that employ 911 Operators. As of July 1, 2022, the number of active PERS 911 Operators included in the analysis is 721 and we assume all 721 911 Operators will elect to transfer from PERS to EMSRS.

    The actuarial cost to EMSRS from the bill was calculated and reviewed by Buck under two scenarios, with the CPRB Actuary providing a peer review of the calculations under these two scenarios.

    To calculate the actuarial cost under the two scenarios, the data, assumptions, and plan provisions from the July 1, 2022, funding valuations for PERS and EMSRS were used, except, the EMSRS data was augmented by the 721 PERS 911 Operators assumed to transfer from PERS to EMSRS on July 1, 2022, and the EMSRS “Accrued Benefit” for the transferring 911 Operators is outlined in the bill.

    We present the actuarial analysis under two scenarios, however, there are many possible scenarios with an actuarial cost different from the results determined under the two scenarios displayed. The actuarial cost to EMSRS from the bill depends on:

    • the future experience of EMSRS, which going forward could be different from the current active members in EMSRS, especially if a large portion of the eligible PERS 911 Operators elect to transfer to EMSRS.
    • the number of PERS 911 Operators that elect to transfer from PERS to EMSRS,
    • the non-911 PERS service of the transferring 911 Operators,
    • the date the assets transfer to EMSRS,
    • and the number of transferring 911 Operators that provide a make-up contribution to EMSRS.


    Scenario 1 Actuarial Cost

    We assume all 721 PERS 911 Operators would elect to transfer all their service from PERS to EMSRS and will provide the make-up contribution to EMSRS. Moreover, we assume that all PERS service transferred to EMSRS by the 911 Operators is 911 service, and therefore, the non-911 PERS service is assumed to be 0 for each 911 Operator transferring from PERS to EMSRS.

    Based on the transfer calculation outlined in §16-5V-6d (c), as of July 1, 2022, the estimated assets that would transfer from PERS to EMSRS is $50.6 million. The actual assets that would transfer according to §16-5V-6d (c) from PERS to EMSRS depends on the PERS market value of assets, the PERS active and inactive actuarial accrued liability, and the PERS actuarial accrued liability for the transferring 911 Operators, all determined as of July 1, 2023.

    It is important to note that the estimated asset transfer amount is based on PERS liabilities, calculated as of July 1, 2022, using the data, assumptions, and plan provisions from the July 1, 2022, funding valuation for PERS. Moreover, the PERS market value of assets, as of July 1, 2022, is provided by the West Virginia Investment Management Board (WVIMB).

    The actual assets transferred in the future from PERS to EMSRS may be different from the estimated asset transfer amount shown above because the actual assets transferred will be determined as of July 1, 2023, with interest at 7.25% per year from July 1, 2023, to the asset transfer date.

    In addition to the assets that would transfer according to §16-5V-6d (c), each
    transferring PERS 911 Operator is assumed to provide a make-up contribution to EMSRS. If all 721 PERS 911 Operators elect to transfer their PERS service to EMSRS and provide the make-up contribution to EMSRS, as of July 1, 2022, the total make-up contributions would increase EMSRS assets by approximately $15.2 million.

    Measured as of July 1, 2022, the estimated PERS actuarial accrued liability for the 721 PERS 911 Operators is $53.4 million. Therefore, as of July 1, 2022, SB 439 would decrease the PERS Unfunded Actuarial Accrued Liability, based on market value of assets, by about $2.8 million ($53.4 million – $50.6 million). The impact from SB 439 on the PERS employer Normal Cost and the PERS Unfunded Actuarial Accrued Liability is immaterial.

    Measured as of July 1, 2022, the estimated EMSRS actuarial accrued liability for the 721 PERS 911 Operators is $71.5 million. This liability was calculated as of July 1, 2022, using the data, assumptions, and plan provisions from the July 1, 2022 funding valuation for EMSRS, except the transferring 911 Operators were included in the EMSRS data and their “Accrued Benefit” is outlined above. We assume all past service for the transferring 911 Operators is 911 service. Note, the results will change if the liabilities are calculated at a different date in the future.

    Measured as of July 1, 2022, the estimated EMSRS market value of assets would increase by $65.8 million ($50.6 million transferred assets from §16-5V-6d (c) plus $15.2 million make-up contributions) if all 721 PERS 911 Operators transfer their PERS service to EMSRS. The increase in EMSRS assets will change if the transfer date is different from the assumed transfer date, July 1, 2022.

    Therefore, as of July 1, 2022, the Unfunded Actuarial Accrued Liability for EMSRS would increase by approximately $5.7 million ($71.5 million – $65.8 million) if 721 PERS 911 Operators transfer from PERS to EMSRS.

    Amortizing this amount over 10 years on a level dollar basis would increase the annual EMSRS amortization of the unfunded actuarial accrued liability by about $800,000 or 1.20% of EMSRS payroll.

    Moreover, SB 439 would increase the EMSRS employer normal cost by about $1.2 million per year, but as a percentage of payroll decreases by 0.24% of EMSRS payroll given the payroll for new members. To see this result, from the July 1, 2022, funding valuation for EMSRS, the EMSRS employer normal cost is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS employer normal cost is 4.00% of EMSRS payroll, as a result of SB 439, under scenario 1.

    Therefore, the total EMSRS annual required employer contribution would increase by approximately $2.0 million or 0.96% of EMSRS payroll if 721 PERS 911 Operators transfer from PERS to EMSRS as of July 1, 2022. To see this result, from the July 1, 2022, funding valuation for EMSRS, the EMSRS total annual required contribution is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS total annual required contribution is 5.20% of EMSRS payroll, as a result of SB 439, under scenario 1.

    For timely transferring 911 Operators, EMSRS contributions begin during October 2024, and the numbers displayed above will change if measured as of this date.


    Scenario 2 Actuarial Cost

    We assume all 721 PERS 911 Operators would elect to transfer all their service from PERS to EMSRS and will not provide the make-up contribution to EMSRS. Furthermore, we assume that all PERS service transferred to EMSRS by the 911 Operators is 911 service, and therefore, the non-911 PERS service is assumed to be 0 for each 911 Operator transferring from PERS to EMSRS.

    Based on the transfer calculation outlined in §16-5V-6d (c), as of July 1, 2022, the estimated assets that would transfer from PERS to EMSRS is $50.6 million. The actual assets that would transfer according to §16-5V-6d (c) from PERS to EMSRS depends on the PERS market value of assets, the PERS active and inactive actuarial accrued liability, and the PERS actuarial accrued liability for the transferring 911 Operators, all determined as of July 1, 2023.

    It is important to note that the estimated asset transfer amount is based on PERS liabilities, calculated as of July 1, 2022, using the data, assumptions, and plan provisions from the July 1, 2022 funding valuation for PERS. Moreover, the PERS market value of assets, as of July 1, 2022, is provided by the West Virginia Investment Management Board (WVIMB).

    The actual assets transferred in the future from PERS to EMSRS may be different from the estimated asset transfer amount shown above because the actual assets transferred will be determined as of July 1, 2023, with interest at 7.25% per year applied from July 1, 2023, to the asset transfer date.

    Measured as of July 1, 2022, the estimated PERS actuarial accrued liability for the 721 PERS 911 Operators is $53.4 million. Therefore, as of July 1, 2022, SB 439 would decrease the PERS Unfunded Actuarial Accrued Liability, based on market value of assets, by about $2.8 million ($53.4 million – $50.6 million). The impact from SB 439 on the PERS employer Normal Cost and the PERS Unfunded Actuarial Accrued Liability is immaterial.

    Measured as of July 1, 2022, the estimated EMSRS actuarial accrued liability for the 721 PERS 911 Operators is $64.1 million. This liability was calculated as of July 1, 2022, using the data, assumptions, and plan provisions from the July 1, 2022 funding valuation for EMSRS, except the transferring 911 Operators were included in the EMSRS data and their “Accrued Benefit” is outlined above. We assume all past service for the transferring 911 Operators is 911 service, however, since a make-up contribution is not provided by the transferring 911 Operator, the past service benefit multiplier is 2.0% for each year of PERS past service. The results will change if the liabilities are calculated at a different date in the future.

    Measured as of July 1, 2022, the estimated EMSRS market value of assets would increase by $50.6 million (transferred assets from §16-5V-6d (c)) if all 721 PERS 911 Operators transfer their PERS service to EMSRS. The increase in EMSRS assets will change if the transfer date is different from the assumed transfer date, July 1, 2022.

    Therefore, as of July 1, 2022, the unfunded actuarial accrued liability for EMSRS would increase by approximately $13.5 million ($64.1 million – $50.6 million) if 721 PERS 911 Operators transfer from PERS to EMSRS.

    Amortizing this amount over 10 years on a level dollar basis would increase the annual EMSRS amortization of the unfunded actuarial accrued liability by about $1.9 million or 2.82% of EMSRS payroll.

    Moreover, SB 439 would increase the EMSRS employer normal cost by about $600,000 per year, but as a percentage of payroll decreases by 1.15% of EMSRS payroll given the payroll for new members. To see this result, from the July 1, 2022, funding valuation for EMSRS, the EMSRS employer normal cost is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS employer normal cost is 3.09% of EMSRS payroll, as a result of SB 439, under scenario 2.

    Therefore, the total EMSRS annual required employer contribution would increase by approximately $2.5 million or 1.67% of EMSRS payroll if 721 PERS 911 Operators transfer from PERS to EMSRS. To see this result, from the July 1, 2022, funding valuation for EMSRS, the EMSRS total annual required contribution is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS total annual required contribution is 5.91% of EMSRS payroll, as a result of SB 439, under scenario 2.

    For timely transferring 911 Operators, EMSRS contributions begin during October 2024, and the numbers displayed above will change if measured as of this date.

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
Impact On	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	$13,500,000.00	$2,500,000.00	1.67 %
Normal Cost of System	N/A	$600,000.00	-1.15 %
Past Service Liabilities	$13,500,000.00	$1,900,000.00	2.82 %
Fiscal Year Past Service Amortization Period Ends	N/A	2032	N/A

Explanation of above Actuarial estimates:

    Note, to be conservative, we have displayed the actuarial cost from only Scenario 2 above, however, other scenarios are possible with very different actuarial costs compared to those displayed. If fewer than 721 PERS 911 Operators elect to transfer from PERS to EMSRS the actuarial cost to EMSRS will be lower than the cost displayed.

    Amortizing this amount over 10 years on a level dollar basis would increase the annual EMSRS amortization of the unfunded actuarial accrued liability by about $1.9 million or 2.82% of EMSRS payroll.

    Moreover, SB 439 would increase the EMSRS employer normal cost by about $600,000 per year, but as a percentage of payroll decreases by 1.15% of EMSRS payroll given the payroll for new members. To see this result, from the July 1, 2022, funding valuation for EMSRS, the EMSRS employer normal cost is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS employer normal cost is 3.09% of EMSRS payroll, as a result of SB 439, under scenario 2.

    Therefore, the total EMSRS annual required employer contribution would increase by approximately $2.5 million or 1.67% of EMSRS payroll if 721 PERS 911 Operators transfer from PERS to EMSRS. To see this result, from the July 1, 2022, funding valuation for EMSRS, the EMSRS total annual required contribution is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS total annual required contribution is 5.91% of EMSRS payroll, as a result of SB 439, under scenario 2.

    For timely transferring 911 Operators, EMSRS contributions begin during October 2024, and the numbers displayed above will change if measured as of this date.

Analysis of Impact on Public Pension Policy:

    As of July 1, 2022, there are 637 active members in EMSRS. In the future the experience of the group of 721 PERS 911 Operators, assumed to transfer to EMSRS, may be different from the existing EMSRS active group experience and may lead to plan gains or losses in the future for the EMSRS plan. If there are losses going forward, the EMSRS employer contribution rate may increase in the future.

    Note that many of the 911 Operators that would elect to transfer from PERS to EMSRS may not elect to provide a make-up contribution to EMSRS because,

    • The average make-up contribution for the 721 PERS 911 Operators is approximately $21,000.

    • It is possible that a transferring 911 Operator may receive a larger retirement benefit if they do not provide a make-up contribution to EMSRS compared to the retirement benefit they would receive if they elected to provide a make-up contribution. For example, a PERS 911 Operator that transfers 5 years of PERS 911 service to EMSRS and works an additional 21 years in EMSRS, then at retirement the 911 Operator would receive a larger retirement benefit if they did not provide a make-up contribution when they transferred to EMSRS.

    To see this, if the 911 Operator provides a make-up contribution when they join EMSRS, their retirement benefit after 26 years of 911 service would be 66.5% of final average salary. However, if the 911 Operator did not elect to provide a make-up contribution when they join EMSRS, their retirement benefit after 26 years of service (5 years at the PERS benefit multiplier and 21 years at the EMSRS multiplier schedule) would be 67.0% of final average salary. There are other examples where the retirement benefit is larger if the 911 Operator elects not to provide the make-up contribution when they join EMSRS, however, these examples typically involve a participant that transfers from PERS to EMSRS and works many future years with EMSRS.

    Note, future actuarial measurements may differ significantly from the current measurements shown in this actuarial/fiscal note due to plan 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 plan provisions, applicable law, and regulations.

Fiscal Note Summary

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

    The impact from SB 439 on the PERS employer Normal Cost and the PERS Unfunded Actuarial Accrued Liability is immaterial.

    EMSRS consists of local municipalities and does not cover any state employees. For fiscal 2025, funding for EMSRS is through member contributions of 8.50% of payroll and employer contributions of 9.50% of payroll.

    EMSRS does not impact the costs or revenues of state government. Moreover, the administrative costs and election costs for the transferring 911 Operators shall be borne by the county employers of the transferring members, in relative proportion to the number of members employed.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2024 Increase/Decrease (use"-")	2025 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	0	0
Personal Services	0	0	0
Current Expenses	0	0	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):

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, 2023, funding valuation reports for PERS and EMSRS, expected to be published on March 31, 2024.

    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.

    Regarding Actuarial Standards of Practice 51, the risk assessment for EMSRS may be affected by allowing PERS 911 Operators to transfer to EMSRS to the extent the experience of this transferring group may be different from the current active population of EMSRS, which could lead to gains or losses in the future for the EMSRS plan. If losses occur going forward the current EMSRS employer contribution rate of 9.5% of payroll may increase.

    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