Actuarial Fiscal Note

Date Requested:January 19, 2023
Time Requested:02:45 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2907 Introduced HB2775
CBD Subject: Governor -- Bills Requested By

Retirement Systems Impacted by Legislation:

TRS 2600, Plan A 2392, and Plan B 2393

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

TRS, Plan A, Plan B



Actuarial Note Summary

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


    HB 2775 would provide a $1,560 per year salary increase for service personnel, which depending on pay grade would be an annual increase between 3.50% and 6.50% in salary. For teachers, HB 2775 would provide a $2,340 per year salary increase and depending on the academic degree received, would be an annual increase between 3.80% and 6.80% in salary.
    
    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability for TRS by approximately $168 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2034) leading to an increase in the TRS annual amortization amount of $23.5 million. The change in the TRS employer normal cost from the salary increases would increase the TRS annual employer contribution by an additional $3.5 million. Therefore, the total increase to the TRS employer contribution in the first year as a result of salary increases would be approximately $27 million or 1.47% of payroll (including pay increases from HB 2775). The SAF is approximately 92% of the TRS total actuarially required contribution, therefore, the corresponding increase in the School Aid Formula from the proposed salary increases would be about $24.8 million ($3.2 million SAF normal cost increase plus $21.6 million SAF amortization increase).
    
    HB 2775 would provide a $2,750 per year salary increase for members from Plan A and Plan B, which depending on pay grade would be an annual increase between 3.62% and 5.67% in salary.
    
    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability (AAL) for Plan B by approximately $10.4 million. Amortizing this increase over ten years on a level dollar basis would increase the Plan B annual employer contribution by approximately $1.5 million. HB 2775 would also increase the Plan B employer normal cost by $250,000. Therefore, the total increase in the Plan B employer contribution would be $1.75 million or 4.33% of base payroll (including pay increases from HB 2775).
    
    The HB 2775 would increase the Plan B employer contribution rate from 34.0% of base payroll to approximately 36.0% of base payroll.
    
    Estimates given are based on actuarial results as of July 1, 2022, using the same assumptions and plan provisions from the July 1, 2022 funding valuations. These estimates are based on assumptions of future events, which may not materialize.
    



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 $178,400,000.00 $28,750,000.00 1.53 %
Normal Cost of System N/A $3,750,000.00 0.20 %
Past Service Liabilities $178,400,000.00 $25,000,000.00 1.33 %
Fiscal Year Past Service
Amortization Period Ends
N/A N/A


Explanation of above Actuarial estimates:


    HB 2775 would provide a $1,560 per year salary increase for service personnel, which depending on pay grade would be an annual increase between 3.50% and 6.50% in salary. For teachers, HB 2775 would provide a $2,340 per year salary increase and depending on the academic degree received, would be an annual increase between 3.80% and 6.80% in salary.
    
    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability for TRS by approximately $168 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2034) leading to an increase in the TRS annual amortization amount of $23.5 million. The change in the TRS employer normal cost from the salary increases would increase the TRS annual employer contribution by an additional $3.5 million. Therefore, the total increase to the TRS employer contribution in the first year as a result of salary increases would be approximately $27 million or 1.47% of payroll (including pay increases from HB 2775). The SAF is approximately 92% of the TRS total actuarially required contribution, therefore, the corresponding increase in the School Aid Formula from the proposed salary increases would be about $24.8 million ($3.2 million SAF normal cost increase plus $21.6 million SAF amortization increase).
    
    HB 2775 would provide a $2,750 per year salary increase for members from Plan A and Plan B, which depending on pay grade would be an annual increase between 3.62% and 5.67% in salary.
    
    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability (AAL) for Plan B by approximately $10.4 million. Amortizing this increase over ten years on a level dollar basis would increase the Plan B annual employer contribution by approximately $1.5 million. HB 2775 would also increase the Plan B employer normal cost by $250,000. Therefore, the total increase in the Plan B employer contribution would be $1.75 million or 4.33% of base payroll (including pay increases from HB 2775).
    
    The HB 2775 would increase the Plan B employer contribution rate from 34.0% of base payroll to approximately 36.0% of base payroll.
    
    Estimates given are based on actuarial results as of July 1, 2022, using the same assumptions and plan provisions from the July 1, 2022 funding valuations. These estimates are based on assumptions of future events, which may not materialize.
    

Analysis of Impact on Public Pension Policy:


    The cost presented in this Actuarial/Fiscal Note only represent the cost associated with HB 2775 for TRS and Plan B. As of July 1, 2022, Plan A has 3 active members, therefore, HB 2775 has a minimal cost to Plan A.



Fiscal Note Summary


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


    HB 2775 would provide a $1,560 per year salary increase for service personnel, which depending on pay grade would be an annual increase between 3.50% and 6.50% in salary. For teachers, HB 2775 would provide a $2,340 per year salary increase and depending on the academic degree received, would be an annual increase between 3.80% and 6.80% in salary.
    
    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability for TRS by approximately $168 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2034) leading to an increase in the TRS annual amortization amount of $23.5 million. The change in the TRS employer normal cost from the salary increases would increase the TRS annual employer contribution by an additional $3.5 million. Therefore, the total increase to the TRS employer contribution in the first year as a result of salary increases would be approximately $27 million or 1.47% of payroll (including pay increases from HB 2775). The SAF is approximately 92% of the TRS total actuarially required contribution, therefore, the corresponding increase in the School Aid Formula from the proposed salary increases would be about $24.8 million ($3.2 million SAF normal cost increase plus $21.6 million SAF amortization increase).
    
    HB 2775 would provide a $2,750 per year salary increase for members from Plan A and Plan B, which depending on pay grade would be an annual increase between 3.62% and 5.67% in salary.
    
    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability (AAL) for Plan B by approximately $10.4 million. Amortizing this increase over ten years on a level dollar basis would increase the Plan B annual employer contribution by approximately $1.5 million. HB 2775 would also increase the Plan B employer normal cost by $250,000. Therefore, the total increase in the Plan B employer contribution would be $1.75 million or 4.33% of base payroll (including pay increases from HB 2775).
    
    The HB 2775 would increase the Plan B employer contribution rate from 34.0% of base payroll to approximately 36.0% of base payroll.
    
    Estimates given are based on actuarial results as of July 1, 2022, using the same assumptions and plan provisions from the July 1, 2022 funding valuations. These estimates are based on assumptions of future events, which may not materialize.
    



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 28,750,000 28,750,000
Personal Services 0 0 0
Current Expenses 0 28,750,000 28,750,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


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


    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability for TRS by approximately $168 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2034) leading to an increase in the TRS annual amortization amount of $23.5 million. The change in the TRS employer normal cost from the salary increases would increase the TRS annual employer contribution by an additional $3.5 million. Therefore, the total increase to the TRS employer contribution in the first year as a result of salary increases would be approximately $27 million or 1.47% of payroll (including pay increases from HB 2775). The SAF is approximately 92% of the TRS total actuarially required contribution, therefore, the corresponding increase in the School Aid Formula from the proposed salary increases would be about $24.8 million ($3.2 million SAF normal cost increase plus $21.6 million SAF amortization increase).
    
    HB 2775 would provide a $2,750 per year salary increase for members from Plan A and Plan B, which depending on pay grade would be an annual increase between 3.62% and 5.67% in salary.
    
    The increase in salaries provided by HB 2775 would increase the actuarial accrued liability (AAL) for Plan B by approximately $10.4 million. Amortizing this increase over ten years on a level dollar basis would increase the Plan B annual employer contribution by approximately $1.5 million. HB 2775 would also increase the Plan B employer normal cost by $250,000. Therefore, the total increase in the Plan B employer contribution would be $1.75 million or 4.33% of base payroll (including pay increases from HB 2775).
    
    The HB 2775 would increase the Plan B employer contribution rate from 34.0% of base payroll to approximately 36.0% of base payroll.
    
    Estimates given are based on actuarial results as of July 1, 2022, using the same assumptions and plan provisions from the July 1, 2022 funding valuations. These estimates are based on assumptions of future events, which may not materialize.
    



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 TRS and Plan B, expected to be published 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.
    
    Regarding Actuarial Standards of Practice 51, the risk assessment for TRS and Plan B may be affected by the salary increases from HB 2775 to the extent that the higher contributions necessitated by the salary increases may not be covered.
    
    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