Actuarial Fiscal Note

Date Requested:January 09, 2019
Time Requested:05:27 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
1503 Introduced SB11
CBD Subject: Legislature, Retirement

Retirement Systems Impacted by Legislation:

PERS 2501

FUND(S):

General Fund

Sources of Revenue:

Increases Existing Expenses

Legislation creates:

PERS



Actuarial Note Summary


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


    SB 11 would introduce a new subsection in the West Virginia Code, §5-10-52 (b). The new subsection provides that any member or former member of the Legislature, who becomes a member of PERS on or after July 1, 2019, shall have their Final Average Salary based on the average of all years of compensation earned by the member rather that the highest five of the last fifteen years of service.
    
    In addition, the new section, §5-10-56, provides that any member or former member of the Legislature, who first becomes a member of PERS on or after July 1, 2019, shall receive one month of credited service for each calendar month he or she is paid for 10 or more days. Under current law, a legislator would receive a full year of credited service for each regular session of the West Virginia Legislative session, however, under SB 11 a legislator is expected to receive two or possibly three months of credited service for each regular session of the West Virginia Legislative session.
    
    
    With regard to the change in Final Average Salary from the highest five of the last fifteen years of service to the average of all years of compensation for legislators who become members of PERS on or after July 1, 2019, SB 11 would result in an annual Normal Cost (NC) savings of approximately $500 and a total Actuarial Accrued Liability (AAL) savings of $1,000 for each newly-participating legislator entering PERS on or after July 1, 2019. 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 in order to receive the annual savings amount.
    
    The change in the credited service definition for Legislators who become a member of PERS on or after July 1, 2019 would result in a reduction in NC and AAL for each new Legislative member, however, the actual reduction would depend on the number of years the member is a Legislator relative to the total number of years in PERS.
    
    The results above are stated on a per member savings, however, because of the small number of legislators expected to participate in PERS relative to the size of PERS, the total savings to the plan is expected to be 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 2035 N/A


Explanation of above estimates:


    As of the effective date, July 1, 2019, the change in Final Average Salary introduced in SB 11 would result in an immediate savings of approximately $500 NC and $1,000 AAL per legislative member that enters PERS on or after July 1, 2019. There would be additional savings to the Plan based on the change in the definition of credited service for legislative members who enter PERS on or after July 1, 2019. The savings would accumulate over time, however, the overall savings to PERS would be immaterial.

Analysis of Impact on Public Pension Policy:


    - Possible unintended reduced benefits for long-time public employees with service earned as a legislative member
    
    - 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.
    



Fiscal Note Summary


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


    SB 11 would introduce a new subsection in the West Virginia Code, §5-10-52 (b). The new subsection provides that any member or former member of the Legislature, who becomes a member of PERS on or after July 1, 2019, shall have their Final Average Salary based on the average of all years of compensation earned by the member rather that the highest five of the last fifteen years of service.
    
    In addition, the new section, §5-10-56, provides that any member or former member of the Legislature, who first becomes a member of PERS on or after July 1, 2019, shall receive one month of credited service for each calendar month he or she is paid for 10 or more days. Under current law, a legislator would receive a full year of credited service for each regular session of the West Virginia Legislative session, however, under SB 11 a legislator is expected to receive two or possibly three months of credited service for each regular session of the West Virginia Legislative session.
    
    
    With regard to the change in Final Average Salary from the highest five of the last fifteen years of service to the average of all years of compensation for legislators who become members of PERS on or after July 1, 2019, SB 11 would result in an annual Normal Cost (NC) savings of approximately $500 and a total Actuarial Accrued Liability (AAL) savings of $1,000 for each newly-participating legislator entering PERS on or after July 1, 2019. 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 in order to receive the annual savings amount.
    
    The change in the credited service definition for Legislators who become a member of PERS on or after July 1, 2019 would result in a reduction in NC and AAL for each new Legislative member, however, the actual reduction would depend on the number of years the member is a Legislator relative to the total number of years in PERS.
    
    The results above are stated on a per member savings, however, because of the small number of legislators expected to participate in PERS relative to the size of PERS, the total savings to the plan is expected to be immaterial.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
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 estimated cost savings from SB 11 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 about $5,500.



Memorandum


    - Possible unintended reduced benefits for long-time public employees with service earned as a legislative member
    
    - 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.
    
    



    Person submitting Fiscal Note: Kenneth M. Woodson Jr., Board Actuary, CPRB
    Email Address: kenneth.m.woodson@wv.gov