Actuarial Fiscal Note

Date Requested:February 22, 2017
Time Requested:08:22 AM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
1118 Introduced HB2156
CBD Subject: Legislature

Retirement Systems Impacted by Legislation:

PERS

FUND(S):

PERS 2501

Sources of Revenue:

Other Fund N/A

Legislation creates:

Neither Program nor Fund



Actuarial Note Summary


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


    This bill provides that any member or former member of the Legislature who claims retirement benefits based on service as a member of the Legislature, that member’s Final Average Salary shall be the average of all years of compensation earned by the member rather than the highest five of the last fifteen years of service.
    
    Note that due to detrimental reliance issues, the CPRB would administer this bill on a prospective basis, and thus only calculate the Final Average Salary under the provisions of the bill for former or current members of the Legislature who make their first ever contribution to PERS on or after the effective date of the bill.
    
    If enacted, the bill would result in an immediate annual Normal Cost savings of approximately $500 and a total Actuarial Accrued Liability (AAL) savings of approximately $1000 for each newly-participating legislator entering the plan. The AAL savings would need to be amortized over the remaining amortization period for the Unfunded Actuarial Accrued Liability (UAAL) in PERS as set by the CPRB to get the annual savings amount. The annual savings would be dependent on the remaining amortization period. Also, note that these results are a per person savings. However, because of the small number of legislators expected to participate in PERS relative to its size, these savings would not have a material impact on the expected costs to the plan as a whole.
    



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 $0.00 $0.00 0.00 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $0.00 $0.00 0.00 %
Fiscal Year Past Service
Amortization Period Ends
N/A 2035 N/A


Explanation of above estimates:


    Based on data for current and former legislators participating in PERS, it is estimated that the changes proposed by this bill would result in an annual Normal Cost savings between $500 and $3,200 for a newly-participating legislator, depending on his or her career length and salary earned during that career. AAL savings range from approximately $9,000 and $125,000 for each legislator to be amortized over the remaining amortization period in PERS. Again, these estimates vary according to the experience of any given participating legislator (when and whether they serve in other public employment covered by PERS, any salary increases/decreases over the course of their service in PERS, length of career, etc.). Also, savings estimates are based on actuarial assumptions which may or may not be met in future years.
    
    Due to the small number of affected members in PERS, these cost savings would not likely result in any material change to the annual contribution requirement for PERS.
    

Analysis of Impact on Public Pension Policy:


    • Possible unintended reduced benefit for long-time public employees with service earned as a member of the legislator.
    • Possible larger pension benefits for members who start their career as a non-legislator and then work at least 15 years as a member of the legislature immediately prior to their retirement.
    • Note that due to detrimental reliance issues preventing the reduction of benefits for members of the plan, the CPRB would administer this bill on a prospective basis, and thus only calculate the Final Average Salary under the provisions of the bill for former or current members of the Legislature who make their first ever contribution to PERS on or after the effective date of the bill. Additional clarification to this effect in the bill would allow for easier administration and less ambiguity surrounding this issue.
    



Fiscal Note Summary


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


    This bill provides that any member or former member of the Legislature who claims retirement benefits based on service as a member of the Legislature, that member’s Final Average Salary shall be the average of all years of compensation earned by the member rather than the highest five of the last fifteen years of service.
    
    Note that due to detrimental reliance issues, the CPRB would administer this bill on a prospective basis, and thus only calculate the Final Average Salary under the provisions of the bill for former or current members of the Legislature who make their first ever contribution to PERS on or after the effective date of the bill.
    
    If enacted, the bill would result in an immediate annual Normal Cost savings of approximately $500 and a total Actuarial Accrued Liability (AAL) savings of approximately $1000 for each newly-participating legislator entering the plan. The AAL savings would need to be amortized over the remaining amortization period for the Unfunded Actuarial Accrued Liability (UAAL) in PERS as set by the CPRB to get the annual savings amount. The annual savings would be dependent on the remaining amortization period. Also, note that these results are a per person savings. However, because of the small number of legislators expected to participate in PERS relative to its size, these savings would not have a material impact on the expected costs to the plan as a whole.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2017
Increase/Decrease
(use"-")
2018
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 5,500 0
Personal Services 0 0 0
Current Expenses 0 5,500 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 estimates (including long-range effect):


    Due to the small number of affected members in PERS, the cost savings estimated for this bill would not likely result in any material change to the annual contribution requirement for PERS. Necessary changes to the pension administration software utilized by the CPRB have the potential to cost approximately $5500.



Memorandum


    • Possible unintended reduced benefit for long-time public employees with service earned as a member of the legislator.
    • Possible larger pension benefits for members who start their career as a non-legislator and then work at least 15 years as a member of the legislature immediately prior to their retirement.
    • Note that due to detrimental reliance issues preventing the reduction of benefits for members of the plan, the CPRB would administer this bill on a prospective basis, and thus only calculate the Final Average Salary under the provisions of the bill for former or current members of the Legislature who make their first ever contribution to PERS on or after the effective date of the bill. Additional clarification to this effect in the bill would allow for easier administration and less ambiguity surrounding this issue.
    
    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. The Actuarial/Fiscal note submitted for SB374 (similar in all provisions, except that it explicitly excludes any member who contributed to PERS as of 6/30/2017) has been reviewed by a qualified actuary, and a letter of certification is available from the CPRB upon request.
    



    Person submitting Fiscal Note: Melody Bailey, Actuarial Analyst, WVCPRB
    Email Address: melody.j.bailey@wv.gov