Actuarial Fiscal Note
Date Requested:February 10, 2016
Time Requested:11:18 AM |
| Agency: |
Consolidated Public Retirement Board |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2688 |
Introduced |
HB 2222 |
|
|---|
| CBD Subject: |
|
|---|
|
Retirement Systems Impacted by Legislation:
PERS
FUND(S):
PERS
Sources of Revenue:
General Fund,Other Fund State and Local Govts
Legislation creates:
Neither Program nor Fund
Actuarial Note Summary
Impact this measure will have on the liabilities and contributions associated with the retirement system(s).
The bill provides that members of the legislature who participate in PERS shall have their final average pay calculated based on the average over all years of service. PERS normally determines benefits based on high three consecutive year average pay (FAP3) during the last 15 years of service.
This provision reduces the benefits under PERS for members of the legislature for all service credited under PERS. Such reduction varies based on actual pay and years of service. Generally, benefits would be reduced by 10% to 20% for shorter service members and up to 30% to 50% for longer service members.
This bill provides for the change in average pay being applied to all members with legislative service credits under PERS. Under federal accrued benefit rules, the benefit already earned by a member may not be retroactively reduced and must be grandfathered as a minimum accrued benefits.
It is noted that the benefit impact on members of the legislature can be a significant reduction from the regular FAP3 based benefit. However, due to the small number of members in the legislature participating in PERS compared to over 36,000 total active members in PERS and the requirement that benefits must be grandfathered, the net impact on PERS is not significant.
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 |
$0.00 |
($20,000.00) |
0.00 % |
| Normal Cost of System |
N/A |
($2,000.00) |
0.00 % |
| 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:
Because of the grandfathering requirement, the Actuarial Accrued Liability (AAL) for current impacted members remains at the current amount. The Normal Cost for current benefits is reduced due to the lower prospective benefits under the reduced average pay.
Analysis of Impact on Public Pension Policy:
Since the benefit change is a prospective reduction for current members of the legislature, a legal review should consider whether or not the change is allowable for current members of the legislature under contractual law in WV.
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The bill provides that members of the legislature who participate in PERS shall have their final average pay calculated based on the average over all years of service. PERS normally determines benefits based on high three consecutive year average pay (FAP3) during the last 15 years of service.
This provision reduces the benefits under PERS for members of the legislature for all service credited under PERS. Such reduction varies based on actual pay and years of service. Generally, benefits would be reduced by 10% to 20% for shorter service members and up to 30% to 50% for longer service members.
This bill provides for the change in average pay being applied to all members with legislative service credits under PERS. Under federal accrued benefit rules, the benefit already earned by a member may not be retroactively reduced and must be grandfathered as a minimum accrued benefits.
It is noted that the benefit impact on members of the legislature can be a significant reduction from the regular FAP3 based benefit. However, due to the small number of members in the legislature participating in PERS compared to over 36,000 total active members in PERS and the requirement that benefits must be grandfathered, the net impact on PERS is not significant.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2016
Increase/Decrease
(use"-") |
2017
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
0 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
0 |
0 |
| 2. Estimated Total Revenues |
-10,000 |
-20,000 |
-25,000 |
Explanation of above Fiscal Note estimates (include possible long-range effect):
Because of the grandfathering requirement, the Actuarial Accrued Liability (AAL) for current impacted members remains at the current amount. The Normal Cost for current benefits is reduced due to the lower prospective benefits under the reduced average pay.
Memorandum
Since the benefit change is a prospective reduction for current members of the legislature, a legal review should consider whether or not the change is allowable for current members of the legislature under contractual law in WV.
Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email Address: harry.w.mandel@wv.gov