Actuarial Fiscal Note

Date Requested:February 28, 2023
Time Requested:02:11 PM

3536	Comm. Sub2	SB590
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).

    The Committee Substitute for the Committee Substitute for SB 590 would allow PERS 911 Operators to transfer from PERS to EMSRS. As of July 1, 2022, there are at least 590 PERS 911 Operators and the Committee Substitute for the Committee Substitute for SB 590 would give these members the option to transfer all their PERS service to EMSRS.

    The bill requires at least 75% of the PERS 911 Operators eligible to transfer from PERS to EMSRS to affirmatively elect to transfer to EMSRS; otherwise, all PERS 911 Operators hired on or before July 1, 2022, will remain in PERS.

    Also, all costs associated with the election to transfer shall be borne by employers of the transferring members, in relative proportion to the number of members employed. 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 of 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 whether they provide a make-up contribution to EMSRS.

    Specifically, for 911 Operators who 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 who 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 credited 911 service and all new service earned from date of membership in this plan will be credited. Additionally, two percent per year for 21 through 25 years of credited 911 service and all new service earned from date of membership in this plan and one and one-half percent per year for each year over 25 years of 911-eligible service and all new service earned from date of membership in this plan will be credited with a maximum benefit of 90 percent of final average salary.

    If a PERS 911 Operator elects to transfer their PERS service to EMSRS, the amount of assets that would be transferred from PERS to EMSRS as a result is outlined in §16-5V-6d (d). 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, with adjustment for interest at a rate of 7.25% per year from July 1, 2023 to the asset transfer date. The CPRB within 180 days of January 1, 2024, shall transfer the assets from PERS to EMSRS for each 911 Operator transferring to EMSRS.

    The make-up contribution to EMSRS is defined in §16-5V-6d (f) 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), within 180 days of January 1, 2024, 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.

    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 data provided was examined for reasonableness but was not audited. The list includes 911 Operators from 40 West Virginia counties out of the 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 590 and we assume all 590 911 Operators will elect to transfer from PERS to EMSRS. Please note that the analysis does not include all PERS 911 Operators eligible to transfer from PERS to EMSRS; however, in my opinion the sample of 590 911 Operators is large enough to produce meaningful results.

    The actuarial cost to EMSRS from the bill was calculated and reviewed by Buck Global, LLC 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 that the EMSRS data was augmented by the 590 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 who elect to transfer from PERS to EMSRS,
    • the non-911 PERS service of the transferring 911 Operators,
    • the date of the asset transfer from PERS to EMSRS,
    • and the number of transferring 911 Operators who provide a make-up contribution
     to EMSRS.

    Scenario 1 Actuarial Cost

    We assume all 590 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 (d), as of July 1, 2022, the estimated assets that would transfer from PERS to EMSRS is $41.3 million. The actual assets that would transfer according to §16-5V-6d (d) from PERS to EMSRS depends on the market value of PERS’s 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 (d), each
    transferring PERS 911 Operator is assumed to provide a make-up contribution to EMSRS. If all 590 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 $12.2 million.

    Measured as of July 1, 2022, the estimated PERS actuarial accrued liability for the 590 PERS 911 Operators is $43.5 million. Therefore, as of July 1, 2022, the Committee Substitute for the Committee Substitute for SB 590 would decrease the PERS Unfunded Actuarial Accrued Liability, based on market value of assets, by about $2.2 million ($43.5 million – $41.3 million). The impact from the Committee Substitute for the Committee Substitute for SB 590 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 590 PERS 911 Operators is $58.3 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. Please note that 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 $53.5 million ($41.3 million transferred assets from §16-5V-6d (d) plus $12.2 million make-up contributions) if all 590 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 $4.8 million ($58.3 million – $53.5 million) if 590 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 $670,000 or 1.11% of EMSRS payroll.

    Moreover, the Committee Substitute for the Committee Substitute for SB 590 would increase the EMSRS employer normal cost by about $1,030,000 per year, but as a percent of payroll decreases by 0.18% of EMSRS payroll given the payroll from 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 4.06% of EMSRS payroll, as a result of the bill, under scenario 1.

    Therefore, the total EMSRS annual required employer contribution would increase by approximately $1.7 million or 0.93% of EMSRS payroll if 590 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 employer contribution is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS total annual required employer contribution is 5.17% of EMSRS payroll, as a result of the bill, under scenario 1.

    For the transferring 911 Operators, the actual EMSRS membership date is July 1, 2024, and the numbers displayed above will change when measured as of this date.

    Scenario 2 Actuarial Cost

    We assume all 590 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 (d), as of July 1, 2022, the estimated assets that would transfer from PERS to EMSRS is $41.3 million. The actual assets that would transfer according to §16-5V-6d (d) 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 590 PERS 911 Operators is $43.5 million. Therefore, as of July 1, 2022, the Committee Substitute for the Committee Substitute for SB 590 would decrease the PERS Unfunded Actuarial Accrued Liability, based on market value of assets, by about $2.2 million ($43.5 million – $41.3 million). The impact from the Committee Substitute for the Committee Substitute for SB 590 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 590 PERS 911 Operators is $52.2 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 Operators, 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 $41.3 million (transferred assets from §16-5V-6d (d)) if all 590 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 $10.9 million ($52.2 million – $41.3 million) if 590 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 $1,524,000 or 2.52% of EMSRS payroll.

    Moreover, the Committee Substitute for the Committee Substitute for SB 590 would increase the EMSRS employer normal cost by about $535,000 per year, but as a percent of payroll decreases by 1.00% of EMSRS payroll given the payroll from 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 3.24% of EMSRS payroll, as a result of the bill, under scenario 2.

    Therefore, the total EMSRS annual required employer contribution would increase by approximately $2.1 million or 1.52% of EMSRS payroll if 590 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 employer contribution is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS total annual required employer contribution is 5.76% of EMSRS payroll, as a result of the bill, under scenario 2.

    For the transferring 911 Operators, the actual EMSRS membership date is July 1, 2024, and the numbers displayed above will change when 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	$10,900,000.00	$2,059,000.00	1.52 %
Normal Cost of System	N/A	$535,000.00	-1.00 %
Past Service Liabilities	$10,900,000.00	$1,524,000.00	2.52 %
Fiscal Year Past Service Amortization Period Ends	N/A	2032	N/A

Explanation of above Actuarial estimates:

    The average make-up contribution for the 590 PERS 911 Operators is $20,678. Therefore, a potentially large group of the 590 PERS 911 Operators may not elect to provide the make-up contribution to EMSRS.

    In addition, 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.

    Note: based on the considerations mentioned above and 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 590 PERS 911 Operators elect to transfer from PERS to EMSRS the actuarial cost to EMSRS will be lower than the cost displayed.

    The impact from the Committee Substitute for the Committee Substitute for SB 590 on the PERS employer Normal Cost and the PERS Unfunded Actuarial Accrued Liability is immaterial.

    For scenario 2 measured as of July 1, 2022, the unfunded actuarial accrued liability for EMSRS would increase by approximately $10.9 million ($52.2 million – $41.3 million) if 590 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 $1,524,000 or 2.52% of EMSRS payroll.

    Moreover, the Committee Substitute for the Committee Substitute for SB 590 would increase the EMSRS employer normal cost by about $535,000 per year, but as a percent of payroll decreases by 1.00% of EMSRS payroll given the payroll from 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 3.24% of EMSRS payroll, as a result of the bill, under scenario 2.

    Therefore, the total EMSRS annual required employer contribution would increase by approximately $2.1 million or 1.52% of EMSRS payroll if 590 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 employer contribution is 4.24% of EMSRS payroll and as of July 1, 2022, the EMSRS total annual required employer contribution is 5.76% of EMSRS payroll, as a result of the bill, under scenario 2.

    For the transferring 911 Operators, the actual EMSRS membership date is July 1, 2024, and the numbers displayed above will change when measured as of this date.

Analysis of Impact on Public Pension Policy:

Fiscal Note Summary

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

    The impact from the Committee Substitute for the Committee Substitute for SB 590 on the PERS employer Normal Cost and the PERS Unfunded Actuarial Accrued Liability is immaterial.

    EMSRS covers employees of local municipalities. It does not cover any state employees. For fiscal 2024, funding for EMSRS is provided 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	2023 Increase/Decrease (use"-")	2024 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):

    The impact from the Committee Substitute for the Committee Substitute for SB 590 on the PERS employer Normal Cost and the PERS Unfunded Actuarial Accrued Liability is immaterial.

    EMSRS covers employees of local municipalities and does not cover any state employees. For fiscal 2024, funding for EMSRS is provided 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.

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 EMSRS, 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 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 experience 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.

    Actuarial Standard of Practice No. 56 (ASOP 56) provides guidance to actuaries when performing actuarial services with respect to designing, developing, selecting, modifying, using, reviewing, or evaluating models. For the ASOP 56 actuarial disclosures, see the July 1, 2022, funding valuation reports for PERS and EMSRS, expected to be published on March 31, 2023.

    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