Actuarial Fiscal Note

Date Requested:February 17, 2023
Time Requested:02:26 PM

3451	Comm. Sub.	SB570
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Retirement

Retirement Systems Impacted by Legislation:

PERS 2501 and NRPORS 2397

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

PERS and NRPORS

Actuarial Note Summary

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

    The purpose of the Committee Substitute for SB 570 is to provide supplemental funding for NRPORS and to increase recruitment and retention of certified officers for the Division of Natural Resources (DNR).

    More specific, the bill adds the following language to §20-18-5(b), “The board may also receive gifts and additional contributions for the purpose of supplementing the plan.”

    Based on current NRPORS plan provisions as of July 1, 2022, there are 18 DNR officers eligible for retirement and if the existing active population of DNR continues to be active as of July 1, 2025 then there will be 27 DNR officers eligible for retirement. As the NRPORS benefit multiplier is scheduled to increase from 2.25% to 2.50% for retirements after July 1, 2025 the number of new NRPORS retirements between now and July 1, 2025 is expected to be small if not zero. This potential delay in retirements could lead to excess retirements immediately following July 1, 2025, which could lead to retirement experience losses and recruitment and retention issues for DNR. Note, the impact to NRPORS from excess retirements is not displayed in this actuarial/fiscal note.

    To motivate the recruitment and retention of DNR officers to fill the potential vacancies from excessive retirements, the Committee Substitute for SB 570 provides the following incentives for three distinct groups:

    (1) DNR officers rehired between January 2, 2021 and June 30, 2026 may request in writing within two years of first becoming a member of NRPORS to transfer all of their PERS service to NRPORS regardless of whether the service was earned as a DNR officer in PERS.
    (2) Certified law enforcement officers in PERS that become employed as a DNR officer between January 2, 2021 and June 30, 2026 may request in writing within two years of first becoming a member of NRPORS to transfer up to three years of PERS service to NRPORS, provided the service is as a certified law enforcement officer in PERS.
    (3) A DNR officer employed prior to January 2, 2021 and rehired as a DNR officer on or after July 1, 2026 may request in writing within one year of first becoming a member of NRPORS to transfer all PERS service as a DNR officer to NRPORS.


    Regarding group (1) above, there are currently two NRPORS members who may timely elect in writing to transfer their remaining PERS service into NRPORS. Measured as of July 1, 2022, if these two members elect to transfer their PERS service into NRPRORS it will increase the unfunded actuarial accrued liability (UAAL) for NRPRORS by approximately $300,000. Amortizing the increase in UAAL on a level dollar basis over the remaining amortization period of 29 years, would increase the NRPORS annual contribution requirement by about $24,000. For group (1), the bill would not materially change the NRPORS employer normal cost, therefore, the impact from the Committee Substitute for SB 570 from group (1) would increase the NRPORS annual employer contribution requirement by approximately $24,000 or 0.36% of NRPORS payroll. If additional DNR members satisfy the conditions of group (1) then the cost to NRPORS will increase.

    For group (2), we assume that 10 PERS certified law enforcement officers in PERS choice to become a member of NRPORS. Moreover, we assume these officers are age 28 as of July 1, 2022 and their pay is comparable to existing new entrants in NRPORS. Furthermore, we assume the 10 officers timely elect to transfer all 3 years of their PERS service as a certified law enforcement officer to NRPORS. Based on these assumptions, the impact from the bill from group (2) would increase the unfunded actuarial accrued liability (UAAL) for NRPORS by approximately $40,000. Amortizing the increase in UAAL on a level dollar basis over the remaining amortization period of 29 years, would increase the NRPORS annual contribution requirement by about $3,000 or 0.05% of NRPORS payroll . For group (2), the bill would increase the NRPORS employer normal cost by about $27,000 or 0.41% of NRPORS payroll, therefore, the impact from the Committee Substitute for SB 570 from group (2) would increase the NRPORS annual employer contribution requirement by approximately $30,000 or 0.46% of NRPORS payroll. The actual number of group (2) members that transfer to NRPORS is unknown at this time, therefore the actual cost to NRPORS from this group may be significantly different from the estimates shown above.

    Group (3) would not increase the UAAL or the annual employer contribution requirement for NRPORS because the existing NRPORS statute currently allows DNR officers that were employed prior to January 2, 2021, to transfer PERS service as a DNR officer to NRPORS upon rehire with a timely election to transfer service.

    The analysis above was measured as of July 1, 2022, using the data, assumptions, and plan provisions from the NRPORS July 1, 2022 funding valuation, except for the additional assumptions mentioned above for group (2).

    If the analysis is performed on a different date the impact to NRPORS from the Committee Substitute for SB 570 will change. Also, the analysis assumes no gains or losses in the future where an expected path is presented. There are future paths where the analysis would be significantly different from the one presented in this actuarial/fiscal note.

    The bill also allows PERS Correctional Officers first hired on or after July 1, 2023, to join NRPORS.

    Based on an analysis of the new entrant profile for PERS Correctional Officers and comparing to the new entrant profile for NRPORS, the bill is not expected to impact the NRPORS employer Normal Cost, as a percentage of payroll, or the Unfunded Actuarial Accrued Liability of NRPORS in the near future.

    However, going forward the PERS Correctional Officers’ experience may be different from the current NRPORS plan experience and may lead to NRPORS actuarial gains or losses in the future if the PERS Correctional Officers are allowed to join NRPORS as new entrants.

    If the PERS Correctional Officers’ experience leads to losses going forward the NRPORS actuarially recommended employer contribution may increase in the future.

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	$340,000.00	$54,000.00	0.82 %
Normal Cost of System	N/A	$27,000.00	0.41 %
Past Service Liabilities	$340,000.00	$27,000.00	0.41 %
Fiscal Year Past Service Amortization Period Ends	N/A	2051	N/A

Explanation of above Actuarial estimates:

    The impact from the Committee Substitute for SB 570 on the PERS employer Normal Cost and the PERS Unfunded Actuarial Accrued Liability is immaterial.

    As a result of the Committee Substitute for SB 570, measured as of July 1, 2022, the Unfunded Actuarial Accrued Liability for NRPORS would increase by approximately $340,000. Amortizing this amount over 29 years on a level dollar basis would increase the annual NRPORS amortization of the UAAL about $27,000 or 0.41% of NRPORS payroll. Moreover, the Committee Substitute for SB 570 would increase the NRPORS employer normal cost by about $27,000 per year, or 0.41% of NRPORS payroll. Therefore, the total NRPORS annual required employer contribution would increase by approximately $54,000 or 0.82% of NRPORS payroll.

    The analysis above was measured as of July 1, 2022, using the data, assumptions, and plan provisions from the NRPORS July 1, 2022 funding valuation, except for the additional assumptions mentioned above for group (2).

    If the analysis is performed on a different date the impact to NRPORS from the Committee Substitute for SB 570 will change. Also, the analysis assumes no gains or losses in the future where an expected path is presented. There are future paths where the analysis would be significantly different from the one presented in this actuarial/fiscal note.

    Based on an analysis of the new entrant profile for PERS Correctional Officers and comparing to the new entrant profile for NRPORS, the bill is not expected to impact the NRPORS employer Normal Cost, as a percentage of payroll, or the Unfunded Actuarial Accrued Liability of NRPORS in the near future.

    However, going forward the PERS Correctional Officers’ experience may be different from the current NRPORS plan experience and may lead to NRPORS actuarial gains or losses in the future if the PERS Correctional Officers are allowed to join NRPORS as new entrants.

    If the PERS Correctional Officers’ experience leads to losses going forward the NRPORS actuarially recommended employer contribution may increase in the future.

Analysis of Impact on Public Pension Policy:

    Based on current NRPORS plan provisions as of July 1, 2022, there are 18 DNR officers eligible for retirement and if the existing active population of DNR continues to be active as of July 1, 2025 then there will be 27 DNR officers eligible for retirement. As the NRPORS benefit multiplier is scheduled to increase from 2.25% to 2.50% for retirements after July 1, 2025 the number of new NRPORS retirements between now and July 1, 2025 is expected to be small if not zero. This potential delay in retirements could lead to excess retirements immediately following July 1, 2025, which could lead to retirement experience losses and recruitment and retention issues for DNR. Note, the impact to NRPORS from excess retirements is not displayed in this actuarial/fiscal note.

    Based on an analysis of the new entrant profile for PERS Correctional Officers and comparing to the new entrant profile for NRPORS, the bill is not expected to impact the NRPORS employer Normal Cost, as a percentage of payroll, or the Unfunded Actuarial Accrued Liability of NRPORS in the near future.

    However, going forward the PERS Correctional Officers’ experience may be different from the current NRPORS plan experience and may lead to NRPORS actuarial gains or losses in the future if the PERS Correctional Officers are allowed to join NRPORS as new entrants.

    If the PERS Correctional Officers’ experience leads to losses going forward the NRPORS actuarially recommended employer contribution may increase in the future.

Fiscal Note Summary

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

    The purpose of the Committee Substitute for SB 570 is to provide supplemental funding for NRPORS and to increase recruitment and retention of certified officers for the Division of Natural Resources (DNR).

    More specific, the bill adds the following language to §20-18-5(b), “The board may also receive gifts and additional contributions for the purpose of supplementing the plan.”

    Based on current NRPORS plan provisions as of July 1, 2022, there are 18 DNR officers eligible for retirement and if the existing active population of DNR continues to be active as of July 1, 2025 then there will be 27 DNR officers eligible for retirement. As the NRPORS benefit multiplier is scheduled to increase from 2.25% to 2.50% for retirements after July 1, 2025 the number of new NRPORS retirements between now and July 1, 2025 is expected to be small if not zero. This potential delay in retirements could lead to excess retirements immediately following July 1, 2025, which could lead to retirement experience losses and recruitment and retention issues for DNR. Note, the impact to NRPORS from excess retirements is not displayed in this actuarial/fiscal note.

    To motivate the recruitment and retention of DNR officers to fill the potential vacancies from excessive retirements, the Committee Substitute for SB 570 provides the following incentives for three distinct groups:

    (1) DNR officers rehired between January 2, 2021 and June 30, 2026 may request in writing within two years of first becoming a member of NRPORS to transfer all of their PERS service to NRPORS regardless of whether the service was earned as a DNR officer in PERS.
    (2) Certified law enforcement officers in PERS that become employed as a DNR officer between January 2, 2021 and June 30, 2026 may request in writing within two years of first becoming a member of NRPORS to transfer up to three years of PERS service to NRPORS, provided the service is as a certified law enforcement officer in PERS.
    (3) A DNR officer employed prior to January 2, 2021 and rehired as a DNR officer on or after July 1, 2026 may request in writing within one year of first becoming a member of NRPORS to transfer all PERS service as a DNR officer to NRPORS.


    Regarding group (1) above, there are currently two NRPORS members who may timely elect in writing to transfer their remaining PERS service into NPRORS. Measured as of July 1, 2022, if these two members elect to transfer their PERS service into NPRORS it will increase the unfunded actuarial accrued liability (UAAL) for NPRORS by approximately $300,000. Amortizing the increase in UAAL on a level dollar basis over the remaining amortization period of 29 years, would increase the NRPORS annual contribution requirement by about $24,000. For group (1), the bill would not materially change the NRPORS employer normal cost, therefore, the impact from the Committee Substitute for SB 570 from group (1) would increase the NRPORS annual employer contribution requirement by approximately $24,000 or 0.36% of NRPORS payroll. If additional DNR members satisfy the conditions of group (1) then the cost to NRPORS will increase.

    For group (2), we assume that 10 PERS certified law enforcement officers in PERS choice to become a member of NRPORS. Moreover, we assume these officers are age 28 as of July 1, 2022 and their pay is comparable to existing new entrants in NRPORS. Furthermore, we assume the 10 officers timely elect to transfer all 3 years of their PERS service as a certified law enforcement officer to NRPORS. Based on these assumptions, the impact from the bill from group (2) would increase the unfunded actuarial accrued liability (UAAL) for NPRORS by approximately $40,000. Amortizing the increase in UAAL on a level dollar basis over the remaining amortization period of 29 years, would increase the NRPORS annual contribution requirement by about $3,000 or 0.05% of NRPORS payroll . For group (2), the bill would increase the NRPORS employer normal cost by about $27,000 or 0.41% of NRPORS payroll, therefore, the impact from the Committee Substitute for SB 570 from group (2) would increase the NRPORS annual employer contribution requirement by approximately $30,000 or 0.46% of NRPORS payroll. The actual number of group (2) members that transfer to NRPORS is unknown at this time, therefore the actual cost to NRPORS from this group may be significantly different from the estimates shown above.

    Group (3) would not increase the UAAL or the annual employer contribution requirement for NRPORS because the existing NRPORS statute currently allows DNR officers that were employed prior to January 2, 2021, to transfer PERS service as a DNR officer to NRPORS upon rehire with a timely election to transfer service.

    The analysis above was measured as of July 1, 2022, using the data, assumptions, and plan provisions from the NRPORS July 1, 2022 funding valuation, except for the additional assumptions mentioned above for group (2).

    If the analysis is performed on a different date the impact to NRPORS from the Committee Substitute for SB 570 will change. Also, the analysis assumes no gains or losses in the future where an expected path is presented. There are future paths where the analysis would be significantly different from the one presented in this actuarial/fiscal note.

    The bill also allows PERS Correctional Officers first hired on or after July 1, 2023, to join NRPORS.

    Based on an analysis of the new entrant profile for PERS Correctional Officers and comparing to the new entrant profile for NRPORS, the bill is not expected to impact the NRPORS employer Normal Cost, as a percentage of payroll, or the Unfunded Actuarial Accrued Liability of NRPORS in the near future.

    However, going forward the PERS Correctional Officers’ experience may be different from the current NRPORS plan experience and may lead to NRPORS actuarial gains or losses in the future if the PERS Correctional Officers are allowed to join NRPORS as new entrants.

    If the PERS Correctional Officers’ experience leads to losses going forward the NRPORS actuarially recommended employer contribution may increase in the future.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2023 Increase/Decrease (use"-")	2024 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	54,000	54,000
Personal Services	0	0	0
Current Expenses	0	54,000	54,000
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):

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 NRPORS, 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 (ASOP 51), the risk assessment for NRPORS may be affected by allowing certain PERS service to transfer to NRPORS to the extent that the higher contributions necessitated by permitting certain PERS service to transfer to NRPORS may not be covered.

    Moreover, the ASOP 51 risk assessment for NRPORS may be affected by allowing PERS Correctional Officers, first hired on or after July 1, 2023, to join NRPORS to the extent that the PERS Correctional Officers experience may evolve differently from the current NRPORS experience which could ultimately increase future contributions to NRPORS.

    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