Actuarial Fiscal Note
Date Requested:February 23, 2021
Time Requested:04:53 PM |
| Agency: |
Consolidated Public Retirement Board |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3075 |
Originating/Introduced |
HB2626 |
|
|---|
| CBD Subject: |
Health |
|---|
|
Retirement Systems Impacted by Legislation:
PERS 2501
FUND(S):
General 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).
Effective January 1, 2022, HB 2626 would discontinue the operations of four state long-term care facilities, Hopemont Hospital, Jackie Withrow Hospital, John Manchin Sr. Health Care Center and Lakin Hospital. PERS members that are employees of one of the long-term care facilities discontinued by HB 2626 would create an actuarial loss to PERS if they enter into a severance agreement and retire immediately, which is earlier than the current PERS retirement assumption where retirement ages are spread over ages 55 through 70.
HB 2626 mentions in section 9-5-27(e) that “if the employee does not transfer, that employee shall receive a severance package which includes their current salary and benefits for one year.” The bill should clarify if the salary for one year is paid as a lump sum and not considered pensionable earnings or if the salary for one year is paid throughout the year and considered pensionable earnings.
This actuarial note does not consider other costs associated with the discontinuation of the four state long-term care facilities.
As of July 1, 2020, there are 305 active PERS members that are employed by one of the long-term care facilities discontinued by HB 2626, and 40 of these members are eligible to retire immediately. If all 40 retire immediately due to a severance agreement, then the approximate cost to PERS would be an increase in the PERS Unfunded Actuarial Liability of $1,000,000. The required amortization payment would be approximately $114,000 annually for FY 2022 through FY 2035. If less than 40 of these members retire immediately, then the cost mentioned above would be less.
It is expected that the loss to PERS from the severance agreements would be paid in full, during FY 2022, by the Department of Health and Human Resources (DHHR) to the Consolidated Public Retirement Board (CPRB), to be deposited into the trust on behalf of PERS. However, currently HB 2626 does not contain language indicating the party responsible to pay for the loss to PERS from discontinuing the operations at the four state long-term care facilities.
It is recommended that wording similar to that in The Committee Substitute for HB 2366, section 9-5-25(g), from the 2017 West Virginia Regular Legislative Session be added to HB 2626 to clarify the responsibilities of the parties involved with the discontinuation of the four state long-term care facilities. Regarding the loss to PERS from severance agreements from the discontinuation of the four state long-term care facilities the following language is recommended:
“Provided, however, that the Department of Health and Human Services shall enter into memoranda of understanding with the Division of Personnel, the Consolidated Public Retirement Board, and the Public Employees Insurance Agency prior to implementation of any benefit package with any employee which must state any cost to any affected retirement system and that this cost is to be paid by the Department of Health and Human Resources. No benefit package may be granted unless memoranda of understanding are filed with the Division of Personnel, the Consolidated Public Retirement Board, and the Public Employees Insurance Agency, and the agreement of the Department of Health and Human Resources to pay the same by a date certain, or if there is not cost, the agreement of the parties to the same. Any benefit package granted without such memoranda of understanding is unlawful.”
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 |
$1,000,000.00 |
$114,000.00 |
0.01 % |
| Normal Cost of System |
N/A |
$0.00 |
0.00 % |
| Past Service Liabilities |
$1,000,000.00 |
$114,000.00 |
0.01 % |
Fiscal Year Past Service
Amortization Period Ends |
N/A |
2035 |
N/A |
Explanation of above Actuarial estimates:
As of July 1, 2020, there are 305 active PERS members that are employed by one of the long-term care facilities discontinued by HB 2626, and 40 of these members are eligible to retire immediately. If all 40 retire immediately due to a severance agreement, then the approximate cost to PERS would be an increase in the PERS Unfunded Actuarial Liability of $1,000,000. The required amortization payment would be approximately $114,000 annually for FY 2022 through FY 2035. If less than 40 of these members retire immediately, then the cost mentioned above would be less.
It is expected that the approximate $1,000,000 loss to PERS from the severance agreements would be paid in full, during FY 2022, by the Department of Health and Human Resources (DHHR) to the Consolidated Public Retirement Board (CPRB), to be deposited into the trust on behalf of PERS.
For the appropriate actuarial disclosures, see the July 1, 2020 funding valuation report for PERS, expected to be published in April 2021.
In particular, future actuarial measurements may differ significantly from the current measurements shown in this actuarial/fiscal note due to plan experience differing from that anticipated by the economic and demographic assumptions, changes expected as part of the natural operation of the methodology used for these measurements, and changes in plan provisions, applicable law and regulations.
Kenneth Woodson Jr., the CPRB Board Actuary, is a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. He meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this actuarial/fiscal note. Both the Board and the CPRB Board Actuary are available to answer any questions on the material contained in this actuarial/fiscal note.
Analysis of Impact on Public Pension Policy:
It is expected that the approximate $1,000,000 loss to PERS from the severance agreements would be paid in full, during FY 2022, by the Department of Health and Human Resources (DHHR) to the Consolidated Public Retirement Board (CPRB), to be deposited into the trust on behalf of PERS. However, currently HB 2626 does not contain language indicating the party responsible to pay for the loss to PERS from discontinuing the operations at the four state long-term care facilities.
It is recommended that wording similar to that in The Committee Substitute for HB 2366, section 9-5-25(g), from the 2017 West Virginia Regular Legislative Session be added to HB 2626 to clarify the responsibilities of the parties involved with the discontinuation of the four state long-term care facilities. Regarding the loss to PERS from severance agreements from the discontinuation of the four state long-term care facilities the following language is recommended:
“Provided, however, that the Department of Health and Human Services shall enter into memoranda of understanding with the Division of Personnel, the Consolidated Public Retirement Board, and the Public Employees Insurance Agency prior to implementation of any benefit package with any employee which must state any cost to any affected retirement system and that this cost is to be paid by the Department of Health and Human Resources. No benefit package may be granted unless memoranda of understanding are filed with the Division of Personnel, the Consolidated Public Retirement Board, and the Public Employees Insurance Agency, and the agreement of the Department of Health and Human Resources to pay the same by a date certain, or if there is not cost, the agreement of the parties to the same. Any benefit package granted without such memoranda of understanding is unlawful.”
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
Effective January 1, 2022, HB 2626 would discontinue the operations of four state long-term care facilities, Hopemont Hospital, Jackie Withrow Hospital, John Manchin Sr. Health Care Center and Lakin Hospital. PERS members that are employees of one of the long-term care facilities discontinued by HB 2626 would create an actuarial loss to PERS if they enter into a severance agreement and retire immediately, which is earlier than the current PERS retirement assumption where retirement ages are spread over ages 55 through 70.
HB 2626 mentions in section 9-5-27(e) that “if the employee does not transfer, that employee shall receive a severance package which includes their current salary and benefits for one year.” The bill should clarify if the salary for one year is paid as a lump sum and not considered pensionable earnings or if the salary for one year is paid throughout the year and considered pensionable earnings.
This actuarial note does not consider other costs associated with the discontinuation of the four state long-term care facilities.
As of July 1, 2020, there are 305 active PERS members that are employed by one of the long-term care facilities discontinued by HB 2626, and 40 of these members are eligible to retire immediately. If all 40 retire immediately due to a severance agreement, then the approximate cost to PERS would be an increase in the PERS Unfunded Actuarial Liability of $1,000,000. The required amortization payment would be approximately $114,000 annually for FY 2022 through FY 2035. If less than 40 of these members retire immediately, then the cost mentioned above would be less.
It is expected that the loss to PERS from the severance agreements would be paid in full, during FY 2022, by the Department of Health and Human Resources (DHHR) to the Consolidated Public Retirement Board (CPRB), to be deposited into the trust on behalf of PERS. However, currently HB 2626 does not contain language indicating the party responsible to pay for the loss to PERS from discontinuing the operations at the four state long-term care facilities.
It is recommended that wording similar to that in The Committee Substitute for HB 2366, section 9-5-25(g), from the 2017 West Virginia Regular Legislative Session be added to HB 2626 to clarify the responsibilities of the parties involved with the discontinuation of the four state long-term care facilities. Regarding the loss to PERS from severance agreements from the discontinuation of the four state long-term care facilities the following language is recommended:
“Provided, however, that the Department of Health and Human Services shall enter into memoranda of understanding with the Division of Personnel, the Consolidated Public Retirement Board, and the Public Employees Insurance Agency prior to implementation of any benefit package with any employee which must state any cost to any affected retirement system and that this cost is to be paid by the Department of Health and Human Resources. No benefit package may be granted unless memoranda of understanding are filed with the Division of Personnel, the Consolidated Public Retirement Board, and the Public Employees Insurance Agency, and the agreement of the Department of Health and Human Resources to pay the same by a date certain, or if there is not cost, the agreement of the parties to the same. Any benefit package granted without such memoranda of understanding is unlawful.”
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2021
Increase/Decrease
(use"-") |
2022
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
1,000,000 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
1,000,000 |
0 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above Fiscal Note estimates (include possible long-range effect):
It is expected that the approximate $1,000,000 loss to PERS from the severance agreements would be paid in full, during FY 2022, by the Department of Health and Human Resources (DHHR) to the Consolidated Public Retirement Board (CPRB), to be deposited into the trust on behalf of PERS.
For the appropriate actuarial disclosures, see the July 1, 2020 funding valuation report for PERS, expected to be published in April 2021.
In particular, future actuarial measurements may differ significantly from the current measurements shown in this actuarial/fiscal note due to plan experience differing from that anticipated by the economic and demographic assumptions, changes expected as part of the natural operation of the methodology used for these measurements, and changes in plan provisions, applicable law and regulations.
Kenneth Woodson Jr., the CPRB Board Actuary, is a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. He meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this actuarial/fiscal note. Both the Board and the CPRB Board Actuary are available to answer any questions on the material contained in this actuarial/fiscal note.
Memorandum
It is expected that the approximate $1,000,000 loss to PERS from the severance agreements would be paid in full, during FY 2022, by the Department of Health and Human Resources (DHHR) to the Consolidated Public Retirement Board (CPRB), to be deposited into the trust on behalf of PERS.
This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by the CPRB Actuary.
Person submitting Fiscal Note: Kenneth M. Woodson Jr.
Email Address: kenneth.m.woodson@wv.gov