Actuarial Fiscal Note

Date Requested:March 09, 2017
Time Requested:01:40 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2865 Introduced HB2887
CBD Subject: Real and Personal Property

Retirement Systems Impacted by Legislation:

TRS

FUND(S):

TRS 2600

Sources of Revenue:

General Fund,Other Fund Higher Education

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).


    The bill as introduced provides that Institutions of Higher Education that offer severance incentive programs no longer require approval from the Joint Committee on Pensions and Retirement but only must submit their plan 60 days prior to its effective date. Lump sums paid as a part of severance plans would be explicitly excluded from calculation of pension benefits (as is current practice). Any person at least age of 65 who is eligible for retirement benefits would not have any actuarial cost attributable to their acceptance of a severance offering. Also, the Higher Education Policy Commission and Council for Community and Technical Colleges would be permitted to offer severance incentives.
    
    It is estimated that the provisions of this bill would increase the unfunded Actuarial accrued Liability (UAAL) of TRS by approximately $2,015,000. It is estimated that this change would increase the required contribution for FY2018 by approximately $222,000, a 0.01% increase in contribution as a percent of payroll. Please note, these estimates only reflect the assumption that all members over age 65 will immediately commence their retirement benefit from TRS. It assumes that any retirement incentives offered would not increase any member benefit they currently have accrued.



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 $2,015,000.00 $222,000.00 0.01 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $2,015,000.00 $222,000.00 0.01 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2034 N/A


Explanation of above Actuarial estimates:


    The estimated increase in UAAL of $2,015,000 would increase the required contribution by $222,000 in FY2018, and in all fiscal years through the remaining amortization period, which is expected to be June 30, 2035. These costs assume that all members over the age of 65 would immediately retire, and that any incentive offered would not increase their benefit. This assumption may not be accurate given the provisions of any particular severance plan, the membership to whom it would be offered, and the members’ option whether to accept the severance.
    The provisions of the bill result in a negligible change to the Normal Cost of the plan.

Analysis of Impact on Public Pension Policy:


    There are costs associated with the offering and acceptance of a severance plan by a member over the age of 65 who is eligible for immediate retirement. Those costs are currently borne by the Institute offering the severance plan. If the bill were to pass, any additional cost to the plan would be an actuarial loss resulting in a slightly increased contribution to be borne by all employers participating in the plan.



Fiscal Note Summary


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


    The estimated Increase in UAAL of $2,015,000 would increase the required contribution by $222,000 in FY2018, and in all fiscal years through the remaining amortization period, which is expected to be June 30, 2035.



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 0 222,000 222,000
Personal Services 0 0 0
Current Expenses 0 222,000 222,000
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 estimated Increase in UAAL of $2,015,000 would increase the required contribution by $222,000 in FY2018, and in all fiscal years through the remaining amortization period, which is expected to be June 30, 2035.



Memorandum


    There are costs associated with the offering and acceptance of a severance plan by a member over the age of 65 who is eligible for immediate retirement. Those costs are currently borne by the Institute offering the severance plan. If the bill were to pass, any additional cost to the plan would be an actuarial loss resulting in a slightly increased contribution to be borne by all employers participating in the plan.
    
    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It 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