Actuarial Fiscal Note

Date Requested:January 28, 2022
Time Requested:12:36 PM

2320	Introduced	SB503
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Retirement

Retirement Systems Impacted by Legislation:

TRS 2600

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

TRS

Actuarial Note Summary

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

    SB 503 would allow TRS Tier 2 members, that is, TRS members hired on or after July 1, 2015, to convert unused sick leave or annual leave into additional benefit service credits. The conversion would be applied based on one day retirement service credit for each one day of accrued annual or sick leave. The exact details of the conversion calculation are in the West Virginia Code of State Rules §162-4-4.12, except the computation in the West Virginia Code of State Rules §162-4-4.12.2.a is the number of days of actual accrued unused sick and annual leave multiplied by one.

    West Virginia Statute §18-7A-28e, “WV 2005 Pension Reform”, prohibits TRS active member benefit increases or the creation of new benefits for TRS active members until the restrictions sunset on July 1, 2034. Therefore, SB 503 would violate “WV 2005 Pension Reform”, however the bill has language that overrides the “WV 2005 Pension Reform” restrictions.

    SB 503 would increase the actuarial accrued liability for TRS by approximately $5.1 million, calculated as of July 1, 2022. Amortizing this liability increase over 10 years on a level dollar basis would increase the annual required employer contribution for TRS by approximately $700,000. Moreover, SB 503 would increase the TRS employer normal cost by about $1.6 million per year, or 0.09% of TRS payroll. Therefore, the total TRS annual employer contribution would increase by approximately $2.3 million, or 0.13% of TRS payroll, due to SB 503.

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	$5,100,000.00	$2,300,000.00	0.13 %
Normal Cost of System	N/A	$1,600,000.00	0.09 %
Past Service Liabilities	$5,100,000.00	$700,000.00	0.04 %
Fiscal Year Past Service Amortization Period Ends	N/A	2034	N/A

Explanation of above Actuarial estimates:

SB 503 would increase the actuarial accrued liability for TRS by approximately $5.1 million, calculated as of July 1, 2022. Amortizing this liability increase over 10 years on a level dollar basis would increase the annual required employer contribution for TRS by approximately $700,000. Moreover, SB 503 would increase the TRS employer normal cost by about $1.6 million per year, or 0.09% of TRS payroll. Therefore, the total TRS annual employer contribution would increase by approximately $2.3 million, or 0.13% of TRS payroll, due to SB 503.

Analysis of Impact on Public Pension Policy:

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	2022 Increase/Decrease (use"-")	2023 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	2,325,000	4,600,000
Personal Services	0	0	0
Current Expenses	0	25,000	4,600,000
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	2,300,000	0
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 TRS annual employer cost of $2.3 million, or 0.13% of payroll for FY 2024, there is a one-time $25,000 expense to setup the administrative software to allow TRS Tier 2 members to convert unused leave into additional benefit service.

    Currently, TRS Tier 2 active members represent about 1/3 of the total active population count. In the future as members leave active status, they are replaced by TRS Tier 2 members and by Fiscal Year 2034 it is estimated that TRS Tier 2 members will represent about 80% of the total active population. As TRS Tier 2 active members increase, the cost of SB 503 will increase. As of July 1, 2034, SB 503 is expected to increase the TRS annual employer cost by $4.6 million or 0.20% of payroll for FY 2034.

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, 2021 funding valuation report for TRS, expected to be published on March 31, 2022.

    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.

    Regarding Actuarial Standards of Practice 51, the risk assessment for TRS may be affected by the addition of the conversion option to the extent that the higher contributions necessitated by its addition may not be covered.

    For the deterministic projections used in this fiscal note, see the July 2019 TRS Risk Assessment Report for details regarding the new entrant profile. The projection assumptions and the valuation assumptions are the same and are equal to the assumptions from the TRS July 1, 2021 funding valuation report. The data and plan provisions used in the projection are the same data and plan provisions used in the TRS July 1, 2021 funding valuation report, except TRS Tier 2 members are allowed to convert unused leave into additional benefit service.

    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