Actuarial Fiscal Note

Date Requested:January 14, 2019
Time Requested:02:59 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
1423 Introduced SB296
CBD Subject: Retirement

Retirement Systems Impacted by Legislation:

PERS 2501

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

PERS



Actuarial Note Summary


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


    SB 296 allows certain PERS members an 11-month window to purchase previously forfeited service. The effective date of the window is from July 1, 2019 through June 1, 2020 and allows any member to purchase credited service previously forfeited, provided the member returns to the members’ deposit fund the amount he or she withdrew from the fund, together with interest on the withdrawn amount from the date of withdrawal to the date of payment at a rate determined by the CPRB, which we assume is 7.5%. The repayment would be made in a single lump sum or repaid over a period of time not to exceed sixty months.
    
    SB 296 is not expected to greatly impact the Normal Cost or Actuarial Accrued Liability of PERS. The increase in cost to PERS is highly dependent on the group of members who choose to reinstate service under this bill.
    



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 2029 N/A


Explanation of above estimates:


    SB 296 is not expected to greatly impact the Normal Cost or Actuarial Accrued Liability of PERS. The increase in cost to PERS is highly dependent on the group of members who choose to reinstate service under this bill and may increase the employer annual required contribution by as much as 0.2500% of payroll.
    
    Each repurchase is expected to result in an actuarial loss of the employer paid liabilities. Such losses are expected to be in the range of $5,000 to $30,000 per electing member.
    

Analysis of Impact on Public Pension Policy:


    Currently, PERS provides a set time period following rehire for the repurchase of previously withdrawn service. The set time period is intended to prevent adverse selection by members who repurchase previously forfeited service.
    
    The window provides the opportunity for members who elected not to repurchase to change their minds. This opportunity results in “adverse selection” of the member against the Plan, in that certain members gain more value from the plan than they are required to pay for the repurchased service.
    
    Current law allows a member to make payments to repurchase service over a period of time up to 48 months. Under the window proposed in SB 296, payments to repurchase service can be made over a longer period of time, 60 months.
    



Fiscal Note Summary


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


    SB 296 allows certain PERS members an 11-month window to purchase previously forfeited service. The effective date of the window is from July 1, 2019 through June 1, 2020 and allows any member to purchase credited service previously forfeited, provided the member returns to the members’ deposit fund the amount he or she withdrew from the fund, together with interest on the withdrawn amount from the date of withdrawal to the date of payment at a rate determined by the CPRB, which we assume is 7.5%. The repayment would be made in a single lump sum or repaid over a period of time not to exceed sixty months.
    
    SB 296 is not expected to greatly impact the Normal Cost or Actuarial Accrued Liability of PERS. The increase in cost to PERS is highly dependent on the group of members who choose to reinstate service under this bill.
    



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 5,000 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 5,000 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


    SB 296 is not expected to greatly impact the Normal Cost or Actuarial Accrued Liability of PERS. The increase in cost to PERS is highly dependent on the group of members who choose to reinstate service under this bill and may increase the employer annual required contribution by as much as 0.25% of payroll.
    
    Each repurchase is expected to result in an actuarial loss of the employer paid liabilities. Such losses are expected to be in the range of $5,000 to $30,000 per electing member.
    
    There is an expected additional one- time expense of $5,000 to update the CPRB administrative software.
    



Memorandum


    PERS provides a set time period following rehire for the repurchase of previously withdrawn service. The set time period is intended to prevent adverse selection by members who repurchase previously forfeited service.
    
    The window provides the opportunity for members who elected not to repurchase to change their minds. This opportunity results in “adverse selection” of the member against the Plan, in that certain members gain more value from the plan than they are required to pay for the repurchased service.
    
    Current law allows a member to make payments to repurchase service over a period of time up to 48 months. Under the window proposed in SB 296, payments to repurchase service can be made over a longer period of time, 60 months.
    
    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by the CPRB Actuary. Both the Board and the CPRB Actuary are available upon request for questions.
    



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