Actuarial Fiscal Note

Date Requested:February 14, 2022
Time Requested:03:18 PM

2575	Introduced	SB589
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Education (K12)

Retirement Systems Impacted by Legislation:

TRS 2600

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

TRS

Actuarial Note Summary

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

    The SB 589 would permit retired participants of TRS to be employed as a substitute bus driver and continue to receive their retirement benefit unreduced.

    Normally, this bill would violate the West Virginia Statute §18-7A-28e (c), known as “2005 Pension Reform”, which prohibits the increase of existing benefits or the creation of new benefits for active members of the Teachers’ Retirement System until the limitation sunsets on July 1, 2034. However, the language in
    §18A-4-15a (a)(2) of the bill would override section §18-7A-28e (c), “2005 Pension Reform”, regarding the employment of retired bus operators as substitutes in areas of critical need and shortage.

    Under current West Virginia State Law, a retired TRS participant can be employed as a substitute bus driver for a total of 140 days each year without reducing their retirement benefit, however, if they work more than 140 days in a given year, their retirement benefit would be reduced to the minimum guaranteed benefit during that portion of the year after they exceed the 140 day threshold. Allowing retired TRS participants to be employed as a substitute bus driver and continue to receive their retirement benefit unreduced would create a new benefit for these TRS members provided they are employed more than 140 days a year.

    In addition, the bill would effectively allow retired TRS participants to return to full-time employment as a substitute bus driver and continue to receive their retirement benefit without reduction. Allowing substitute bus drivers to potentially work full-time and receive their retirement benefit unadjusted could violate the IRS in-service distribution rule and could possibly lead to the TRS defined benefit plan being disqualified by the IRS.


    We assume the bill would add approximately 150 critical need substitute bus drivers and we further assume that 50% of the additional drivers would be from current TRS retirees, or about 75 TRS retirees.

    For these 75 TRS retirees, if they work more than 140 days per year, the bill would allow them to continue to receive their full TRS retirement benefit while employed as a critical need substitute bus driver, instead of the reduced benefit equal to the minimum guaranteed benefit during that period of the year after they exceed the 140 day threshold.

    As of July 1, 2021, the average monthly retirement benefit for current TRS service retirees is $2,100 and the average monthly minimum guaranteed benefit for TRS service retirees is $1,200. Therefore, on average, the retiree would receive an additional $900 per month to be employed as a critical need substitute bus driver for each month the retiree works during the school year after exceeding the 140 day threshold, which we assume is 4 months per year.

    The bill would sunset on June 30, 2027, therefore, over the next 5 years, the total increase in TRS UAAL as of July 1, 2022, would be approximately $1,350,000, (75*900*4*5), assuming no annual interest rate discounting and the 75 retirees serve the entire 5-year period as a critical need substitute bus driver.
    The increase in TRS UAAL depends on the number of retirees that are employed as a critical need substitute bus driver and the number of days they work during the year. If all 75 TRS retirees work no more than 140 days per year then the bill would not increase the TRS UAAL. Also, the estimated increase in TRS UAAL from the bill uses average benefits, the actual retirement benefits and corresponding guaranteed benefits will be different.

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	$1,350,000.00	$170,000.00	0.01 %
Normal Cost of System	N/A	$0.00	0.00 %
Past Service Liabilities	$1,350,000.00	$170,000.00	0.01 %
Fiscal Year Past Service Amortization Period Ends	N/A	2034	N/A

Explanation of above Actuarial estimates:

    The SB 589 would not impact the TRS employer normal cost because a retiree that is hired as a critical need substitute bus driver would not accrue additional service while they are a critical need substitute driver. Moreover, the pay received by the retiree as a critical need substitute bus driver would not be considered pensionable earnings in TRS.

    If we assume 75 TRS retirees return to work as a critical need substitute bus driver and they work the entire school year for each year during the life of the bill, June 30, 2027, the bill would increase the TRS UAAL, as of July 1, 2022, by approximately $1,350,000. Amortizing the $1,350,000 over 12 years would increase the annual TRS employer contribution by about $170,000 until fully amortized on June 30, 2034.

Analysis of Impact on Public Pension Policy:

Fiscal Note Summary

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

    The SB 589 would permit retired participants of TRS to be employed as a substitute bus driver and continue to receive their retirement benefit unreduced.

    Normally, this bill would violate the West Virginia Statute §18-7A-28e (c), known as “2005 Pension Reform”, which prohibits the increase of existing benefits or the creation of new benefits for active members of the Teachers’ Retirement System until the limitation sunsets on July 1, 2034. However, the language in
    §18A-4-15a (a)(2) of the bill would override section §18-7A-28e (c), “2005 Pension Reform”, regarding the employment of retired bus operators as substitutes in areas of critical need and shortage.

    Under current West Virginia State Law, a retired TRS participant can be employed as a substitute bus driver for a total of 140 days each year without reducing their retirement benefit, however, if they work more than 140 days each year, their retirement benefit would be reduced to the minimum guaranteed benefit during that portion of the year after they exceed the 140-day threshold. Allowing retired TRS participants to be employed as a substitute bus driver and continue to receive their retirement benefit unreduced would create a new benefit for these TRS members provided they are employed more than 140 days a year.

    In addition, the bill would effectively allow retired TRS participants to return to full-time employment as a substitute bus driver and continue to receive their retirement benefit without reduction. Allowing substitute bus drivers to potentially work full-time and receive their retirement benefit unadjusted could violate the IRS in-service distribution rule and could possibly lead to the TRS defined benefit plan being disqualified by the IRS.


    We assume the bill would add approximately 150 critical need substitute bus drivers and we further assume that 50% of the additional drivers would be from current TRS retirees, or about 75 TRS retirees.

    For these 75 TRS retirees, if they work more than 140 days per year, the bill would allow them to continue to receive their full TRS retirement benefit while employed as a critical need substitute bus driver, instead of the reduced benefit equal to the minimum guaranteed benefit during that period of the year after they exceed the 140-day threshold.

    As of July 1, 2021, the average monthly retirement benefit for current TRS service retirees is $2,100 and the average monthly minimum guaranteed benefit for TRS service retirees is $1,200. Therefore, on average, the retiree would receive an additional $900 per month to be employed as a critical need substitute bus driver for each month the retiree works during the school year after exceeding the 140-day threshold, which we assume is 4 months per year.

    The bill would sunset on June 30, 2027, therefore, over the next 5 years, the total increase in TRS UAAL as of July 1, 2022, would be approximately $1,350,000, (75*900*4*5), assuming no annual interest rate discounting and the 75 retirees serve the entire 5-year period as a critical need substitute bus driver.
    The increase in TRS UAAL depends on the number of retirees that are employed as a critical need substitute bus driver and the number of days they work during the year. If all 75 TRS retirees work no more than 140 days per year then the bill would not increase the TRS UAAL. Also, the estimated increase in TRS UAAL from the bill uses average benefits, the actual retirement benefits and corresponding guaranteed benefits will be different.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2022 Increase/Decrease (use"-")	2023 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	170,000	170,000
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	170,000	170,000
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, 2021 funding valuation report for TRS, expected to be published on March 31, 2022.

    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.

    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