Actuarial Fiscal Note

Date Requested:February 23, 2022
Time Requested:04:26 PM

2940	Engrossed - Originating in Com.	SB669
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:

Retirement Systems Impacted by Legislation:

JRS 2140

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

JRS

Actuarial Note Summary

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

    Currently, the JRS member contribution rate is set by the Consolidated Public Retirement Board, however, West Virginia Statute requires this rate to be no less than 7.0% of payroll and no more than 10.5% of payroll. This bill would change the JRS member contribution rate range to no less than 3.0% of payroll and no more than 10.0% of payroll, where as before, the JRS member contribution rate would be set by the CPRB Board within this new range.

    The funding policy for JRS is to contribute the employer Normal Cost while the plan remains at full funding. However, since July 1, 2015, the recommended JRS employer contribution has been offset for funding more than 122.5% of the Present Value of Future Benefits but not less than the expected member contributions. For the foreseeable future, this means the JRS employer contribution is set equal to the expected member contributions. Since July 1, 2013, the JRS member contribution rate has been set at 7.0% of payroll.

    As of July 1, 2021, the JRS funded status is 263.1%. To reduce the excess funding of JRS, this bill would allow the JRS member contribution rate to be set at 3.0% of payroll and for the foreseeable future, the JRS employer contribution rate would also be equal to 3.0% of payroll, however, the CPRB Board sets the JRS member contribution rate at the January CPRB Board meeting each year. The next potential JRS member contribution rate change, effective for fiscal year 2024, would be at the January 2023 CPRB Board meeting and would be based on information available at that time.

    The JRS funding valuation, as of July 1, 2021, determined the FY 2023 employer contribution of $797,000, based on a member contribution rate of 7.0% of payroll. The estimated member contribution for FY 2023 is also $797,000. Based on a member contribution rate of 3.0% of payroll, the bill would reduce the member contribution to about $342,000 and reduce the employer contribution to about $342,000.

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	$0.00	($455,000.00)	-4.00 %
Normal Cost of System	N/A	($455,000.00)	-4.00 %
Past Service Liabilities	$0.00	$0.00	0.00 %
Fiscal Year Past Service Amortization Period Ends	N/A		N/A

Explanation of above Actuarial estimates:

    The JRS funding valuation, as of July 1, 2021, determined the FY 2023 employer contribution of $797,000, based on a member contribution rate of 7.0% of payroll. The estimated member contribution for FY 2023 is also $797,000. Based on a member contribution rate of 3.0% of payroll, the bill would reduce the member contribution to about $342,000 and reduce the employer contribution to about $342,000.

    There is no increase in retirement benefits under the bill which results in no increase in JRS Actuarial Accrued Liability.

    The bill would potentially reduce JRS member and employer contributions, however, the plan is still expected to be fully funded for the foreseeable future. Note these estimates are based on an expected path, where all actuarial assumptions are met in the future.

Analysis of Impact on Public Pension Policy:

    PERS Tier 1 members contribute 4.5% of payroll and PERS Tier 2 members contribute 6.0% of payroll. The reduced JRS member contribution rate of 3.0% of payroll could encourage the eligible JRS judges to transfer from PERS to JRS.

    Also, if JRS remains fully funded for many years, then a generation of JRS members would contribute significantly less to the plan than the previous generation of JRS members and would receive similar benefits.

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	-455,000	-455,000
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	-455,000	-455,000
2. Estimated Total Revenues	0	0	0

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

    The JRS funding valuation as of July 1, 2021, determined the FY 2023 employer contribution of $797,000, based on a member contribution rate of 7.0% of payroll. The estimated member contribution for FY 2023 is also $797,000. Based on a member contribution rate of 3.0% of payroll, the bill would reduce the member contribution to about $342,000 and reduce the employer contribution to about $342,000.

    There is no increase in retirement benefits under the bill which results in no increase in JRS Actuarial Accrued Liability.

    The bill would potentially reduce JRS member and employer contributions, however, the plan is expected to be fully funded for the foreseeable future. Note these estimates are based on an expected path, where all actuarial assumptions are met in the future.

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 JRS, 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 JRS may be affected by the reduced member and employer contributions to the extent that the UAAL would increase, and the plan may not be fully funded in the future.

    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