Actuarial Fiscal Note

Date Requested:February 12, 2025
Time Requested:06:26 PM

1284	Introduced	SB76
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Natural Resources; Retirement

Retirement Systems Impacted by Legislation:

NRPORS 2397

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

NRPORS

Actuarial Note Summary

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

    SB 76 has one technical correction. In the definition section for “Hour of Service”, §20-18-2 (v)(1), the sentence “Each hour for which a member is paid;” the strikethrough should be removed.

    The purpose of SB 76 is to modify the definition of “Accrued Benefit” in NRPORS as follows: “members who retire on or after January 1, 2028, shall have an accrued benefit of two and three-fourths percent of the member’s final average salary multiplied by the member’s years of credited service”. Finally, the bill provides additional NRPORS employer contributions of $850,000 per year for FY 2026 through FY 2030 in addition to the NPRORS annual recommended employer contributions for those fiscal years.

    To analyze the impact from increasing the benefit multiplier to 2.75% for all years of credited service and providing the additional employer contributions of $850,000, per year for FY 2026 through FY 2030, we perform two deterministic asset/liability projection scenarios.

    For the deterministic projections used in this actuarial/fiscal note, the new entrant profile was developed based on an analysis of recent new hires in NRPORS.

    Scenario 1 is the baseline projection scenario which uses the current assumptions and plan provisions from the July 1, 2024, funding valuation for NRPORS, without including the provisions from the bill. In this scenario no additional contributions are made to the plan, and the benefit multiplier is not increased to 2.75% for all credited service.

    Scenario 2 is the projection scenario that incorporates the bill. This scenario also uses the current assumptions from the July 1, 2024, funding valuation for NRPORS. However, anticipating fewer retirements prior to the benefit multiplier increase in January 2028, the expected experience is modified to allow no retirements for Calendar Years 2025 through 2027 and twice the current retirement rates for Calendar Year 2028. The plan provisions used in Scenario 2 are the same plan provisions from the July 1, 2024, funding valuation for NRPORS, except, retirements on or after January 1, 2028, have a benefit multiplier of 2.75% applied to all credited service. Under scenario 2, we assume additional contributions of $850,000 per year for FY 2026 through FY 2030 are made above and beyond the employer contribution amount actuarially set by the CPRB.

    Measured as of July 1, 2024, the impact from the benefit multiplier increase to 2.75% applied to all credited service and the additional employer contributions of $850,000 per year for FY 2026 through FY 2030 would increase the unfunded actuarial accrued liability (UAAL) for NRPORS by approximately $1.9 million and amortizing this amount by June 30, 2051 (27 years from July 1, 2024) on a level dollar basis would increase the annual recommended employer contribution for NRPORS by approximately $159,000 or 2.03% of FY 2025 NRPORS payroll .

    Moreover, these changes would increase the NRPORS employer normal cost by about $106,000 per year, or 1.35% of FY 2025 NRPORS payroll. Therefore, measured as of July 1, 2024, the total FY 2025 NRPORS annual recommended employer contribution would increase by approximately $265,000, or 3.38% of NRPORS payroll, from these changes.

    The UAAL from scenario 1 is expected to increase to $9.8 million as of July 1, 2025, and then orderly decrease to $5.0 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 18.0% of payroll for FY 2026 and then orderly decreases to 14.4% of payroll, or $2.0 million for FY 2043.

    The UAAL from scenario 2 is expected to increase to $12.4 million as of July 1, 2025, and then orderly decrease to $4.8 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 21.6% of payroll for FY 2026 and then orderly decreases to 15.8% of payroll, or $2.2 million for FY 2043. However, under scenario 2, additional employer contributions of $850,000 per year are made for FY 2026 through FY 2030.

    Comparing the annual recommended employer contribution for NRPORS, under the two scenarios outlined above, we see that in FY 2043 the difference is expected to be around $200,000. This small amount indicates that the enhanced benefit multiplier is mostly paid for through the additional contributions of $850,000 per year for FY 2026 through FY 2030.

    It is important to note that the actuarial costs displayed in this actuarial/fiscal note are based on a middle-of-the-road future path, where all the assumptions are met with no experience gains or losses in the future. The actual cost from SB 76 may be different from the expected path results presented in this actuarial/fiscal note.

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
Impact On	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	$1,900,000.00	$265,000.00	3.38 %
Normal Cost of System	N/A	$106,000.00	1.35 %
Past Service Liabilities	$1,900,000.00	$159,000.00	2.03 %
Fiscal Year Past Service Amortization Period Ends	N/A	2051	N/A

Explanation of above Actuarial estimates:

    Measured as of July 1, 2024, SB 76 would increase the unfunded actuarial accrued liability for NRPORS by approximately $1.9 million and amortizing this amount by June 30, 2051 (27 years from July 1, 2024) on a level dollar basis would increase the annual recommended employer contribution for NRPORS by approximately $159,000 or 2.03% of FY 2025 NRPORS payroll.

    Moreover, SB 76 would increase the NRPORS employer normal cost by about $106,000 per year, or 1.35% of FY 2025 NRPORS payroll. Therefore, measured as of July 1, 2024, the total FY 2025 NRPORS annual recommended employer contribution would increase by approximately $265,000, or 3.38% of NRPORS payroll, due to the benefit multiplier increase to 2.75% for all credited service and the additional employer contributions of $850,000 per year for FY 2026 through FY 2030.

Analysis of Impact on Public Pension Policy:

    To analyze the impact from increasing the benefit multiplier to 2.75% for all years of credited service and providing the additional employer contributions of $850,000 per year for FY 2026 through FY 2030, we perform two deterministic asset/liability projection scenarios.

    For the deterministic projections used in this actuarial/fiscal note, the new entrant profile was developed based on an analysis of recent new hires in NRPORS.

    Scenario 1 is the baseline projection scenario which uses the current assumptions and plan provisions from the July 1, 2024, funding valuation for NRPORS, without including the provisions from the bill. In this scenario no additional contributions are made to the plan, and the benefit multiplier is not increased to 2.75% for all credited service.

    Scenario 2 is the projection scenario that incorporates the bill. This scenario also uses the current assumptions from the July 1, 2024, funding valuation for NRPORS. However, anticipating fewer retirements prior to the benefit multiplier increase in January 2028, the expected experience is modified to allow no retirements for Calendar Years 2025 through 2027 and twice the current retirement rates for Calendar Year 2028. The plan provisions used in Scenario 2 are the same plan provisions from the July 1, 2024, funding valuation for NRPORS, except, retirements on or after January 1, 2028, have a benefit multiplier of 2.75% applied to all credited service. Under scenario 2, we assume additional contributions of $850,000 per year for FY 2026 through FY 2030 are made above and beyond the employer contribution amount actuarially set by the CPRB.

    Measured as of July 1, 2024, the impact from the benefit multiplier increase to 2.75% applied to all credited service and the additional employer contributions of $850,000 per year for FY 2026 through FY 2030 would increase the unfunded actuarial accrued liability for NRPORS by approximately $1.9 million and amortizing this amount by June 30, 2051 (27 years from July 1, 2024) on a level dollar basis would increase the annual recommended employer contribution for NRPORS by approximately $159,000 or 2.03% of FY 2025 NRPORS payroll.

    Moreover, these changes would increase the NRPORS employer normal cost by about $106,000 per year, or 1.35% of FY 2025 NRPORS payroll. Therefore, measured as of July 1, 2024, the total FY 2025 NRPORS annual recommended employer contribution would increase by approximately $265,000, or 3.38% of NRPORS payroll, from these changes.

    The UAAL from scenario 1 is expected to increase to $9.8 million as of July 1, 2025, and then orderly decrease to $5.0 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 18.0% of payroll for FY 2026 and then orderly decreases to 14.4% of payroll, or $2.0 million for FY 2043.

    The UAAL from scenario 2 is expected to increase to $12.4 million as of July 1, 2025, and then orderly decrease to $4.8 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 21.6% of payroll for FY 2026 and then orderly decreases to 15.8% of payroll, or $2.2 million for FY 2043. However, under scenario 2, additional employer contributions of $850,000 per year are made for FY 2026 through FY 2030.

    Comparing the annual recommended employer contribution for NRPORS, under the two scenarios outlined above, we see that in FY 2043 the difference is expected to be around $200,000. This small amount indicates that the enhanced benefit multiplier is mostly paid for through the additional contributions of $850,000 per year for FY 2026 through FY 2030.

    It is important to note that the actuarial costs displayed in this actuarial/fiscal note are based on a middle-of-the-road future path, where all the assumptions are met with no experience gains or losses in the future. The actual cost from SB 76 may be different from the expected path results presented in this actuarial/fiscal note.

Fiscal Note Summary

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

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2025 Increase/Decrease (use"-")	2026 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	290,000	341,000	200,000
Personal Services	0	0	0
Current Expenses	25,000	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	265,000	341,000	200,000
2. Estimated Total Revenues	0	0	0

Explanation of above Fiscal Note estimates (include possible long-range effect):

    In addition to the increase in the NRPORS annual recommended employer cost of $265,000, or 3.38% of payroll for FY 2025, there is a one-time $25,000 expense to setup the administrative software to increase the benefit multiplier to 2.75% for all credited service for retirements on or after January 2028.

    To analyze the impact from increasing the benefit multiplier to 2.75% for all years of credited service and providing the additional employer contributions of $850,000 per year for FY 2026 through FY 2030, we perform two deterministic asset/liability projection scenarios.

    For the deterministic projections used in this actuarial/fiscal note, the new entrant profile was developed based on an analysis of recent new hires in NRPORS.

    Scenario 1 is the baseline projection scenario which uses the current assumptions and plan provisions from the July 1, 2024, funding valuation for NRPORS, without including the provisions from the bill. In this scenario no additional contributions are made to the plan, and the benefit multiplier is not increased to 2.75% for all credited service.

    Scenario 2 is the projection scenario that incorporates the bill. This scenario also uses the current assumptions from the July 1, 2024, funding valuation for NRPORS. However, anticipating fewer retirements prior to the benefit multiplier increase in January 2028, the expected experience is modified to allow no retirements for Calendar Years 2025 through 2027 and twice the current retirement rates for Calendar Year 2028. The plan provisions used in Scenario 2 are the same plan provisions from the July 1, 2024, funding valuation for NRPORS, except, retirements on or after January 1, 2028, have a benefit multiplier of 2.75% applied to all credited service. Under scenario 2, we assume additional contributions of $850,000 per year for FY 2026 through FY 2030 are made above and beyond the employer contribution amount actuarially set by the CPRB.

    The UAAL from scenario 1 is expected to increase to $9.8 million as of July 1, 2025, and then orderly decrease to $5.0 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 18.0% of payroll for FY 2026 and then orderly decreases to 14.4% of payroll, or $2.0 million for FY 2043.

    The UAAL from scenario 2 is expected to increase to $12.4 million as of July 1, 2025, and then orderly decrease to $4.8 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 21.6% of payroll for FY 2026 and then orderly decreases to 15.8% of payroll, or $2.2 million for FY 2043. However, under scenario 2, additional employer contributions of $850,000 per year are made for FY 2026 through FY 2030.

    Comparing the annual recommended employer contribution for NRPORS, under the two scenarios outlined above, we see that in FY 2043 the difference is expected to be around $200,000. This small amount indicates that the enhanced benefit multiplier is mostly paid for through the additional contributions of $850,000 per year for FY 2026 through FY 2030.

    It is important to note that the actuarial costs displayed in this actuarial/fiscal note are based on a middle-of-the-road future path, where all the assumptions are met with no experience gains or losses in the future. The actual cost from SB 76 may be different from the expected path results presented in this actuarial/fiscal note.

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.

    For the appropriate actuarial disclosures, see the July 1, 2024, funding valuation report for NRPORS, expected to be published in March 2025.

    In particular, future actuarial measurements may differ significantly from current measurements due to System 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 system provisions or applicable law or regulations. An analysis of the potential range of such future differences is beyond the scope of the request addressed here.

    Regarding Actuarial Standards of Practice 51, the risk assessment for NRPORS may be affected by the benefit multiplier increase to the extent that the higher contributions necessitated by its addition may not be covered.

    Actuarial Standard of Practice No. 56 provides guidance to actuaries when performing actuarial services with respect to designing, developing, selecting, modifying, using, reviewing, or evaluating models. The CPRB uses third-party software in the performance of annual actuarial valuations and projections.

    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.

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