Actuarial Fiscal Note

Date Requested:February 13, 2018
Time Requested:01:08 PM

2586	Introduced	HB4539
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Retirement

Retirement Systems Impacted by Legislation:

DSRS 2150

FUND(S):

Other Fund

Sources of Revenue:

local governments Increases Existing Expenses

Legislation creates:

DSRS

Actuarial Note Summary

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

    As introduced, this bill would provide an annual cost-of-living adjustment of 1% to the annuities of all retirants who are at least age 60, all disability retirants, and all surviving spouses and beneficiaries receiving annuity benefits under the plan. This increase in benefits would occur on July 1 of each year in which the funded percentage of the Actuarial Accrued Liabilities of the plan is at least 122.5%, and would be prorated for those who have been retired less than 1 year as of July 1. In addition, the bill would increase the minimum employer contribution to 12% of pay beginning July 1, 2018, and would not remove that minimum required contribution until the plan has reached 122.5% funded.

    As of July 1, 2017, the DSRS plan is 98.8% funded. Absent consistent investment returns well above the assumed return rate of 7.5%, it is not anticipated that the DSRS plan would reach the 122.5% funded level within the next several years, and so there is little chance that the benefit increase will be given in the near future.

    However, using measurements as of July 1, 2017, if the 1% benefit increase were effective on July 1, 2018, the Unfunded Actuarial Accrued Liability of the plan would increase by approximately $15.378 million, and the Normal Cost of the plan would increase by an estimated 0.98% (or approximately $507,000). The total estimated increase in the required annual employer contribution to the plan would be $2.283 million. The current employer contribution rate of 12.0% would be sufficient to meet the additional cost.

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	$15,378,000.00	$2,283,000.00	4.57 %
Normal Cost of System	N/A	$507,000.00	0.98 %
Past Service Liabilities	$15,378,000.00	$1,776,000.00	3.59 %
Fiscal Year Past Service Amortization Period Ends	N/A	2029	N/A

Explanation of above Actuarial estimates:

It is not expected that the DSRS plan would reach a funding level of 122.5% within the next several years, and so the probability of an increase in benefits per the bill’s provisions is very small. However, hypothetically, if the increase were implemented on July 1, 2018, benefits for current and future retirees who would be eligible for the COLA would increase both the Normal Cost of the plan (benefits accrued during the current year) as well as the value of the benefits already accrued (the Actuarial Accrued Liability, or AAL). As a result, the required contribution by employers to the plan would increase. These estimated additional costs are based on the July 1, 2017 Actuarial Valuation for funding of the DSRS plan, as approved by the CPRB on January 24, 2018. However, the provisions of the bill also retain the maximum 13% contribution rate for participating DSRS employers, and the 8.5% contribution for participating members. Conversely, the bill also implements a minimum 12% contribution rate until the plan reaches the 122.5% funding level (thus, the plan’s contribution rate is not likely to decrease within the next several years from its current level).

Analysis of Impact on Public Pension Policy:

As of July 1, 2017, the DSRS plan is 98.8% funded. Absent consistent investment returns well above the assumed return rate of 7.5%, it is not anticipated that the DSRS plan would reach the 122.5% funded level within the next several years, and so there is little chance that the benefit increase will be given in the near future.

Fiscal Note Summary

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

The Deputy Sheriff Retirement System is not a liability of the State, and as such the increased cost to the system due to the proposed COLA would not affect the State’s costs. However, additional costs would be incurred by the CPRB in making the required changes to the computer software used to administer pension benefits. The bill does not provide a source of funding for this additional cost.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2018 Increase/Decrease (use"-")	2019 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	46,000	0
Personal Services	0	0	0
Current Expenses	0	46,000	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):

Memorandum

    Additional costs would be incurred by the CPRB in making the required changes to the computer software used to administer pension benefits. The bill does not provide a source of funding for this additional cost.

    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by a qualified actuary. Both the Board and the actuary are available upon request for questions.

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