Actuarial Fiscal Note

Date Requested:February 15, 2022
Time Requested:04:30 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2597 Amendment HB4614
CBD Subject: Retirement

Retirement Systems Impacted by Legislation:

MPFRS 2390

FUND(S):

Other Fund

Sources of Revenue:

Local Governments Creates New Expense

Legislation creates:

MPFRS



Actuarial Note Summary

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


    Amended HB 4614 would allow MPFRS members to convert unused sick leave and annual leave into additional benefit service credit. More specific, the bill states that any member accruing annual leave or sick leave days may elect to use the days at the time of retirement to acquire credited service in MPFRS. The days shall be applied on the basis of two workdays’ credit granted for each one day of accrued annual or sick leave days, with each month of retirement service credit to equal 20 workdays and with any remainder of 10 workdays or more to constitute a full month of additional credit and any remainder of less than 10 workdays to be dropped and not used.
    
    Amended HB 4614 would increase the Actuarial Accrued Liability of MPFRS by approximately $525,000, as of July 1, 2021. Due to the fully funded status of MPFRS, the cost increase results in no additional amortization payment of the MPFRS unfunded liability, and calculated as of July 1, 2021, the MPFRS employer normal cost would increase by about $340,000 or 1.18% of payroll.
    
    Thus, the total increase to the MPFRS employer contribution would be about $340,000, measured as of July 1, 2021. The current annual MPFRS employer contribution rate 8.5% of payroll and the current annual MPFRS employee contribution rate 8.5% of payroll should be sufficient to pay the additional cost from Amended HB 4614.
    
    To estimate the cost impact from the bill we assume all assumptions from the MPFRS July 1, 2021, funding valuation, except, to account for the option to convert unused leave into additional benefit service, at retirement all members are assumed to be credited with 2.50 additional years of benefit service.
    



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 $525,000.00 $340,000.00 1.18 %
Normal Cost of System N/A $340,000.00 1.18 %
Past Service Liabilities $525,000.00 $0.00 0.00 %
Fiscal Year Past Service
Amortization Period Ends
N/A N/A


Explanation of above Actuarial estimates:


    The cost estimate of Amended HB 4614 is based on the MPFRS July 1, 2021, Actuarial Funding Valuation, except, to account for the option to convert unused leave into additional benefit service, at retirement all members are assumed to be credited with 2.50 additional years of benefit service.
    
    The cost increase results in no additional amortization payment of the MPFRS unfunded liability, due to the fully funded position of MPFRS, and the MPFRS employer normal cost would increase by 1.18% of payroll. Member and employer contribution rates for MPFRS are not expected to change because of Amended HB 4614. However, these cost estimates are based on an expected path, where all plan assumptions are met in the future, with no gains or losses.
    
    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.
    

Analysis of Impact on Public Pension Policy:


    All costs associated with this legislation are based on the MPFRS July 1, 2021, Actuarial Funding Valuation, except, to account for the option to convert unused leave into additional benefit service, at retirement all members are assumed to be credited with 2.50 additional years of benefit service.
    
    We assume that all relevant assumptions will be met in all future years. If those assumptions are not met, costs could fluctuate resulting in a potential increase or decrease in costs.
    



Fiscal Note Summary


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


    MPFRS consists of local municipalities and does not cover any state employees. Funding for MPFRS is through member contributions of 8.50% of payroll and employer contributions of 8.50% of payroll.
    
    MPFRS does not impact the costs or revenues of state government. However, additional costs of approximately $10,000 would be incurred by the CPRB in making the required changes to the computer software used to administer pension benefits. The bill does not provide a source of funding for this additional cost.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2022
Increase/Decrease
(use"-")
2023
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 10,000 0
Personal Services 0 0 0
Current Expenses 0 10,000 0
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):


    MPFRS consists of local municipalities and does not cover any state employees. Funding for MPFRS is through member contributions of 8.50% of payroll and employer contributions of 8.50% of payroll.
    
    MPFRS does not impact the costs or revenues of state government. However, additional costs of approximately $10,000 would be incurred by the CPRB in making the required changes to the computer software used to administer pension benefits. The bill does not provide a source of funding for this additional cost.
    



Memorandum


    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by the CPRB Actuary.
    
    For the appropriate actuarial disclosures, see the July 1, 2021, funding valuation report for MPFRS, expected to be published in March 2022.
    
    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.
    
    Regarding Actuarial Standards of Practice 51, the risk assessment for MPFRS may be affected by the option to convert unused leave into additional benefit service to the extent that the higher contributions necessitated by the option to convert unused leave into additional benefit service may not be covered.
    
    
    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.
    



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