Actuarial Fiscal Note

Date Requested:March 10, 2017
Time Requested:03:43 PM
Agency: Municipal Pensions Oversight Board
CBD Number: Version: Bill Number: Resolution Number:
1237 Introduced HB2537
CBD Subject: Municipalities

Retirement Systems Impacted by Legislation:

Municipal Policemen's and Firemen's Pension & Relief Funds

FUND(S):

Municipal Policemen's and Firemen's Pension & Relief Funds

Sources of Revenue:

Other Fund Local Governments

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 raises the amount a firefighter or police officer receiving a non-duty related disability pension from a municipal policemen's pension and relief fund or firemen's pension and relief fund can earn from self employment or employment by another before having his or her disability pension offset due to the subsequent employment. The current annual income limit before offset occurs is $7,500. The bill proposes to raise that limit to $18,200. Further the bill would automatically increase the $18,200 limit when the minimum wage increases by the same percentage of the increase in the minimum wage.
    
    Each municipal policemen's pension plan and municipal firemen's pension plan would have its own costs which would need to be determined. The time constraints given on Fiscal Notes prohibited the Municipal Pensions Oversight Board's actuary, Gabriel Roeder Smith & Co. from performing a full cost impact for each of the 53 plans.
    
    For cost purposes, under current law, if a 30-year-old disability annuitant receiving $24,000 per year and makes $18,200 annually, the member's disability income is offset by $3,567 per year. If that same member makes $7,500 or less annually, the members disability income is not offset. Under the proposed law, the member would not have an offset as long as he or she did not earn more than $18,200 on an annual basis. Assuming the bill becomes law, each plan with a 30-year-old non-duty disability annuitant would have increased costs of $3,567 per year if the member earned $18,200. The present value of increased benefits would be $66,000 for that one individual.
    
    
    



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 N/A


Explanation of above estimates:


    The increases in the UAAL can only be determined with all of the appropriate data from each plan which was not available.
    
    According to the actuarial assumptions used in the valuations as of June 30, 2015, the probability of non-duty disability for a 30 year old was 0.088%, for a 40 year old was 0.200% and for a 50 year old was 0.316%. Given the low incidence of non-duty disability, the increase in present value of benefits for representative future non-duty disabled members who are gainfully employed after disability ranges from approximately 1%-4% of pay before disability for a current 30-year-old member and decreases by age to approximately 0.25% of pay for a 50-year-old member.

Analysis of Impact on Public Pension Policy:


    If the bill becomes law, the benefits for non-duty disability members will increase when a member takes on new employment and makes more than the existing $7,500 annually but less than or equal to $18,200. Earnings above $18,200 will cause the one dollar for every three dollars offset to occur.
    
    For plans using the Alternative funding policy, there is no explicit provision to fund increases in plan benefits.
    
    Plans using the Standard or Optional funding policy will experience an increase in contributions equal to the increase in normal cost plus the amortization of the increase in unfunded liability.
    
    For severely underfunded plans, the increase in plan benefits could
     (i) accelerate the year the assets are depleted
     (ii) increase the additional solvency contributions required to receive MPOB contributions or provide additional COLA benefits or
     (iii) decrease the interest rate and consequently increase the unfunded actuarial liability.



Fiscal Note Summary


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


    The costs and revenues of state government will not be affected by the passage of this bill.



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 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):


    The costs and revenues of state government will not be affected by the passage of this bill.



Memorandum


    The municipal policemen's pension and relief funds and the firemen's pension and relief funds are local government plans and only cover men and women employed by the respective plans.
    
    



    Person submitting Fiscal Note: Blair Taylor, Executive Direcor MPOB
    Email Address: blair.m.taylor@wv.gov