Actuarial Fiscal Note

Date Requested:February 20, 2019
Time Requested:08:42 AM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2815 Introduced HB2730
CBD Subject: Governor -- Bills Requested By

Retirement Systems Impacted by Legislation:

TRS 2600, DPS-A 2392, and DPS-B 2393

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

TRS, DPS-A, and DPS-B



Actuarial Note Summary

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


    HB 2730 would provide a $1,380 per year salary increase for service personnel in TRS, which depending on pay grade would be an annual increase between 3.35% and 6.47% in salary. For teachers in TRS, HB 2730 would provide a $2,120 per year salary increase and depending on the academic degree received, would be an annual increase between 3.70% and 7.00% in salary.
    
    The increase in salaries for TRS service personnel and teachers provided by HB 2730 would increase the actuarial accrued liability for TRS by approximately $120 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2034) leading to an increase in the annual amortization amount of $14 million. The change in normal cost from the salary increases would increase the annual employer contribution by an additional $2.4 million. Therefore, the increase in total employer contribution for TRS in the first year would be approximately $16.4 million or 1.17% of payroll and the School Aid Formula would increase by about $15.4 million or about 1.10% of payroll in the first year.
    
    In addition, HB 2730 would provide a $2,370 per year salary increase for the West Virginia State Police, which depending on rank would be an annual increase between 3.72% and 6.56% in salary.
    
    The increase in salaries for West Virginia State Police would increase the actuarial accrued liability for State Police Plan A by approximately $700,000. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2025) leading to an increase in the annual amortization amount of $150,000. The change in normal cost from the salary increases would increase the annual employer contribution by an additional $20,000. Therefore, the increase in total employer contribution for State Police Plan A in the first year would be approximately $170,000.
    
    The increase in salaries for West Virginia State Police would increase the actuarial accrued liability for State Police Plan B by approximately $7.0 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2026) leading to an increase in the annual amortization amount of $1.3 million. The change in normal cost from the salary increases would increase the annual employer contribution by an additional $162,000. Therefore, the increase in total employer contribution for State Police Plan B in the first year would be approximately $1.46 million.
    



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 $127,700,000.00 $18,032,000.00 1.26 %
Normal Cost of System N/A $2,582,000.00 0.18 %
Past Service Liabilities $127,700,000.00 $15,450,000.00 1.08 %
Fiscal Year Past Service
Amortization Period Ends
N/A 2034 N/A


Explanation of above Actuarial estimates:


    HB 2730 would increase the unfunded liability by $127.7 million ($120.0 million for TRS, $700,000 for State Police Plan A, and $7.0 million for State Police Plan B). In the first year of implementation, the normal cost would increase by approximately $2.6 million ($2.4 million for TRS, $20,000 for State Police Plan A, and $162,000 for State Police Plan B) or 0.18% of payroll and the amortization of the additional unfunded liability would be about $15.5 million ($14.0 million for TRS, $150,000 for State Police Plan A, and $1.3 million for State Police Plan B) or 1.08% of payroll. Therefore, the additional annual employer cost in the first year would be approximately $18.0 million or 1.26% of payroll.
    
    Going forward, the estimated increase to annual normal cost will remain a part of the plan’s annual cost provided there are members in the plan who are accruing benefits. The increased payments toward amortizing the unfunded liabilities in the plan will remain a part of the annual cost through the lifetime of the amortization period which ends on June 30, 2034 for TRS, June 30, 2025 for State Police Plan A, and June 30, 2026 for State Police Plan B.
    
    
    Estimates given are based on actuarial results as of July 1, 2018, using the same assumptions and plan provisions from the July 1, 2017 funding valuation report. These estimates are based on assumptions of future events, which may not materialize. Future measurements may differ significantly due to plan experience differing from that anticipated by these assumptions, by the natural operation of the methodology used for these measurements, or by changes to plan provisions.
    

Analysis of Impact on Public Pension Policy:


    HB 2730 would increase the unfunded liability by $127.7 million ($120.0 million for TRS, $700,000 for State Police Plan A, and $7.0 million for State Police Plan B). In the first year of implementation, the normal cost would increase by approximately $2.6 million ($2.4 million for TRS, $20,000 for State Police Plan A, and $162,000 for State Police Plan B) or 0.18% of payroll and the amortization of the additional unfunded liability would be about $15.5 million ($14.0 million for TRS, $150,000 for State Police Plan A, and $1.3 million for State Police Plan B) or 1.08% of payroll. Therefore, the additional annual employer cost in the first year would be approximately $18.0 million or 1.26% of payroll.
    
    Going forward, the estimated increase to annual normal cost will remain a part of the plan’s annual cost provided there are members in the plan who are accruing benefits. The increased payments toward amortizing the unfunded liabilities in the plan will remain a part of the annual cost through the lifetime of the amortization period which ends on June 30, 2034 for TRS, June 30, 2025 for State Police Plan A, and June 30, 2026 for State Police Plan B.
    
    
    Estimates given are based on actuarial results as of July 1, 2018, using the same assumptions and plan provisions from the July 1, 2017 funding valuation report. These estimates are based on assumptions of future events, which may not materialize. Future measurements may differ significantly due to plan experience differing from that anticipated by these assumptions, by the natural operation of the methodology used for these measurements, or by changes to plan provisions.
    



Fiscal Note Summary


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


    HB 2730 would provide a $1,380 per year salary increase for service personnel in TRS, which depending on pay grade would be an annual increase between 3.35% and 6.47% in salary. For teachers in TRS, HB 2730 would provide a $2,120 per year salary increase and depending on the academic degree received, would be an annual increase between 3.70% and 7.00% in salary.
    
    The increase in salaries for TRS service personnel and teachers provided by HB 2730 would increase the actuarial accrued liability for TRS by approximately $120 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2034) leading to an increase in the annual amortization amount of $14 million. The change in normal cost from the salary increases would increase the annual employer contribution by an additional $2.4 million. Therefore, the increase in total employer contribution for TRS in the first year would be approximately $16.4 million or 1.17% of payroll and the School Aid Formula would increase by about $15.4 million or about 1.10% of payroll in the first year.
    
    In addition, HB 2730 would provide a $2,370 per year salary increase for the West Virginia State Police, which depending on rank would be an annual increase between 3.72% and 6.56% in salary.
    
    The increase in salaries for West Virginia State Police would increase the actuarial accrued liability for State Police Plan A by approximately $700,000. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2025) leading to an increase in the annual amortization amount of $150,000. The change in normal cost from the salary increases would increase the annual employer contribution by an additional $20,000. Therefore, the increase in total employer contribution for State Police Plan A in the first year would be approximately $170,000.
    
    The increase in salaries for West Virginia State Police would increase the actuarial accrued liability for State Police Plan B by approximately $7.0 million. The unfunded liability would be amortized on a level dollar basis for the remaining amortization period (until June 30, 2026) leading to an increase in the annual amortization amount of $1.3 million. The change in normal cost from the salary increases would increase the annual employer contribution by an additional $162,000. Therefore, the increase in total employer contribution for State Police Plan B in the first year would be approximately $1.46 million.
    



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 18,032,000 18,032,000
Personal Services 0 0 0
Current Expenses 0 18,032,000 18,032,000
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):


    HB 2730 would increase the unfunded liability by $127.7 million ($120.0 million for TRS, $700,000 for State Police Plan A, and $7.0 million for State Police Plan B). In the first year of implementation, the normal cost would increase by approximately $2.6 million ($2.4 million for TRS, $20,000 for State Police Plan A, and $162,000 for State Police Plan B) or 0.18% of payroll and the amortization of the additional unfunded liability would be about $15.5 million ($14.0 million for TRS, $150,000 for State Police Plan A, and $1.3 million for State Police Plan B)or 1.08% of payroll. Therefore, the additional annual employer cost in the first year would be approximately $18.0 million or 1.26% of payroll.
    
    Going forward, the estimated increase to annual normal cost will remain a part of the plan’s annual cost provided there are members in the plan who are accruing benefits. The increased payments toward amortizing the unfunded liabilities in the plan will remain a part of the annual cost through the lifetime of the amortization period which ends on June 30, 2034 for TRS, June 30, 2025 for State Police Plan A, and June 30, 2026 for State Police Plan B.
    
    
    Estimates given are based on actuarial results as of July 1, 2018, using the same assumptions and plan provisions from the July 1, 2017 funding valuation report. These estimates are based on assumptions of future events, which may not materialize. Future measurements may differ significantly due to plan experience differing from that anticipated by these assumptions, by the natural operation of the methodology used for these measurements, or by changes to plan provisions.
    



Memorandum


    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