Actuarial Fiscal Note

Date Requested:January 17, 2018
Time Requested:11:47 AM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
1864 Comm. Sub. HB3095
CBD Subject: Education (Higher)

Retirement Systems Impacted by Legislation:

TRS 2600

FUND(S):

General Fund

Sources of Revenue:

Increases Existing Expenses

Legislation creates:

TRS



Actuarial Note Summary


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


    The House Education Committee Substitute, and the bill as introduced, violated §18-7A-28e, known as “2005 Pension Reform”, which prohibits increases to benefits for active members of TRS. However, with the addition of a provision which specifies that in order to be eligible for this benefit, one must be retired from TRS as of July 1, 2018, this proposed legislation satisfies the requirement within §18-7A-28e which allows increases to the benefits of retirees in an amount that does not exceed 1% of the plan’s most recently measured Actuarial Accrued Liability.
    In order not to violate §18-7A-28e(c) of 2005 Pension Reform, the bill would need to provide that only retirees of TRS who are retired as of July 1, 2018 shall be permitted to return to work in a full-time capacity for any Institute of Higher Education (including HEPC and CCTC) without affecting his or her retirement benefit. (Currently, all retirees may return to work in a full-time capacity, but with a reduced monthly annuity.) The current House Education Committee Substitute requires a 6-month waiting period between commencement of the retirement annuity and return to employment, which avoids any possibility of in-service distribution, which is prohibited by the IRS for qualified plans.
    
    There is a cost to the plan for allowing retirants to return to work while still receiving their full annuity benefit. Currently, the benefit each member who returns to work in a full-time capacity is reduced by approximately 25% to 70% (for current TRS members who are receiving a reduced benefit, that reduction varies from $580/year to over $95,000/year, averaging $14,500/year). However, because the number of retirees who would be anticipated to take advantage of the additional benefit is very small when compared to the population of the plan, the additional cost due to the current provisions of the bill is so small as to be considered immaterial.
    



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 2034 N/A


Explanation of above estimates:


    Under current law, retirees of TRS are prohibited from working 7 or more hours per semester at any Institute of Higher Education without a reduction in their monthly annuity. Thus, allowing all TRS retirees to return to work with no limit on the number of hours allowed would provide an additional benefit that is not currently available. If the provisions of this bill were amended to allow only current retirees as of July 1, 2018 to become reemployed at Institutes of Higher Education (as well as the Higher Education Policy Commission and the Council for Community and Technical College Education) without any reduction in monthly benefit, the bill would avoid the prohibition on benefit increases to active members. There are a limited number of TRS retirees who would be expected to take advantage of this opportunity (there are currently fewer than 2000 TRS retirees whose most recent employer was an institute of Higher Education, and It is assumed that there are a limited number of employment positions potentially available within those Institutions). Thus, the additional costs to the TRS plan are considered immaterial.

Analysis of Impact on Public Pension Policy:


    The House Education Committee Substitute, and the bill as introduced, violated §18-7A-28e, known as “2005 Pension Reform”, which prohibits increases to benefits for active members of TRS. However, with the addition of a provision which specifies that in order to be eligible for this benefit, one must be retired from TRS as of July 1, 2018, this proposed legislation satisfies the requirement within §18-7A-28e which allows increases to the benefits of retirees in an amount that does not exceed 1% of the plan’s most recently measured Actuarial Accrued Liability.
    In order not to violate §18-7A-28e(c) of 2005 Pension Reform, the bill would need to provide that only retirees of TRS who are retired as of July 1, 2018 shall be permitted to return to work in a full-time capacity for any Institute of Higher Education (including HEPC and CCTC) without affecting his or her retirement benefit. (Currently, all retirees may return to work in a full-time capacity, but with a reduced monthly annuity.) The current House Education Committee Substitute requires a 6-month waiting period between commencement of the retirement annuity and return to employment, which avoids any possibility of in-service distribution, which is prohibited by the IRS for qualified plans.
    
    There is a cost to the plan for allowing retirants to return to work while still receiving their full annuity benefit. Currently, the benefit each member who returns to work in a full-time capacity is reduced by approximately 25% to 70% (for current TRS members who are receiving a reduced benefit, that reduction varies from $580/year to over $95,000/year, averaging $14,500/year). However, because the number of retirees who would be anticipated to take advantage of the additional benefit is very small when compared to the population of the plan, the additional cost due to the current provisions of the bill is so small as to be considered immaterial. The costs may also be slightly greater than just the cost of the additional benefit being paid that under current legislation would be reduced, because to some extent the bill encourages certain members to retire earlier than they would without the additional incentive of a full-time salary in addition to a full annuity.
    
    It should be noted that allowing retirees to continue to receive a full annuity benefit in addition to a salary for full-time employment represents the concept of “double-dipping” which is generally viewed negatively.
    



Fiscal Note Summary


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


    The House Education Committee Substitute, and the bill as introduced, violated §18-7A-28e, known as “2005 Pension Reform”, which prohibits increases to benefits for active members of TRS. However, with the addition of a provision which specifies that in order to be eligible for this benefit, one must be retired from TRS as of July 1, 2018, this proposed legislation satisfies the requirement within §18-7A-28e which allows increases to the benefits of retirees in an amount that does not exceed 1% of the plan’s most recently measured Actuarial Accrued Liability.
    In order not to violate §18-7A-28e(c) of 2005 Pension Reform, the bill would need to provide that only retirees of TRS who are retired as of July 1, 2018 shall be permitted to return to work in a full-time capacity for any Institute of Higher Education (including HEPC and CCTC) without affecting his or her retirement benefit. (Currently, all retirees may return to work in a full-time capacity, but with a reduced monthly annuity.) The current House Education Committee Substitute requires a 6-month waiting period between commencement of the retirement annuity and return to employment, which avoids any possibility of in-service distribution, which is prohibited by the IRS for qualified plans.
    
    There is a cost to the plan for allowing retirants to return to work while still receiving their full annuity benefit. Currently, the benefit each member who returns to work in a full-time capacity is reduced by approximately 25% to 70% (for current TRS members who are receiving a reduced benefit, that reduction varies from $580/year to over $95,000/year, averaging $14,500/year). However, because the number of retirees who would be anticipated to take advantage of the additional benefit is very small when compared to the population of the plan, the additional cost due to the current provisions of the bill is so small as to be considered immaterial.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
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 estimates (including long-range effect):


    Under current law, retirees of TRS are prohibited from working 7 or more hours per semester at any Institute of Higher Education without a reduction in their monthly annuity. Thus, allowing all TRS retirees to return to work with no limit on the number of hours allowed would provide an additional benefit that is not currently available. If the provisions of this bill were amended to allow only current retirees as of July 1, 2018 to become reemployed at Institutes of Higher Education (as well as the Higher Education Policy Commission and the Council for Community and Technical College Education) without any reduction in monthly benefit, the bill would avoid the prohibition on benefit increases to active members. There are a limited number of TRS retirees who would be expected to take advantage of this opportunity (there are currently fewer than 2000 TRS retirees whose most recent employer was an institute of Higher Education, and It is assumed that there are a limited number of employment positions potentially available within those Institutions). Thus, the additional costs to the TRS plan are considered immaterial.



Memorandum


    The House Education Committee Substitute, and the bill as introduced, violated §18-7A-28e, known as “2005 Pension Reform”, which prohibits increases to benefits for active members of TRS. However, with the addition of a provision which specifies that in order to be eligible for this benefit, one must be retired from TRS as of July 1, 2018, this proposed legislation satisfies the requirement within §18-7A-28e which allows increases to the benefits of retirees in an amount that does not exceed 1% of the plan’s most recently measured Actuarial Accrued Liability.
    In order not to violate §18-7A-28e(c) of 2005 Pension Reform, the bill would need to provide that only retirees of TRS who are retired as of July 1, 2018 shall be permitted to return to work in a full-time capacity for any Institute of Higher Education (including HEPC and CCTC) without affecting his or her retirement benefit. (Currently, all retirees may return to work in a full-time capacity, but with a reduced monthly annuity.) The current House Education Committee Substitute requires a 6-month waiting period between commencement of the retirement annuity and return to employment, which avoids any possibility of in-service distribution, which is prohibited by the IRS for qualified plans.
    
    There is a cost to the plan for allowing retirants to return to work while still receiving their full annuity benefit. Currently, the benefit each member who returns to work in a full-time capacity is reduced by approximately 25% to 70% (for current TRS members who are receiving a reduced benefit, that reduction varies from $580/year to over $95,000/year, averaging $14,500/year). However, because the number of retirees who would be anticipated to take advantage of the additional benefit is very small when compared to the population of the plan, the additional cost due to the current provisions of the bill is so small as to be considered immaterial. The costs may also be slightly greater than just the cost of the additional benefit being paid that under current legislation would be reduced, because to some extent the bill encourages certain members to retire earlier than they would without the additional incentive of a full-time salary in addition to a full annuity.
    
    It should be noted that allowing retirees to continue to receive a full annuity benefit in addition to a salary for full-time employment represents the concept of “double-dipping” which is generally viewed negatively.
    



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