Actuarial Fiscal Note

Date Requested:February 12, 2019
Time Requested:01:04 PM

3227	Introduced	HB3070
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Public Safety

Retirement Systems Impacted by Legislation:

DPS-Plan B 2393

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

DPS-Plan B

Actuarial Note Summary

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

    HB 3070 would change the benefit multiplier in the State Police Retirement Plan (Plan B) from 2.75% to 3.00% for all current and prospective retirees.

    As a result, the actuarial accrued liability of the plan would be expected to increase approximately $16.005 million. The increase in actuarial accrued liability for active members and deferred vested participants would be approximately $11.897 million and if amortized over 10 years on a level dollar basis would increase the amortization portion of the FY2020 employer required contribution by approximately $1.672 million. The increase in actuarial accrued liability for retirees and beneficiaries would be around $834,000 and if amortized over 6 years on a level dollar basis would increase the amortization of the FY2020 employer required contribution by about $171,000. Therefore, the total increase in the amortization portion of the FY2020 employer required contribution would be approximately $1.843 million or 5.95% of base payroll.

    In addition, the employer normal cost of the plan would be expected to increase by 1.90% of base payroll, or roughly $587,000 for the FY2020 employer required contribution. Thus, the total expected increase to the FY2020 employer contribution would be $2.430 million or 7.85% of base payroll.

    Going forward, assuming no actuarial liability gains or losses, the increase in actuarial accrued liability from the proposed bill would be fully amortized in 10 years (FY2029) and only the increase in employer normal cost would remain (1.90% of base payroll).

    Because the member contribution rate is set statutorily at 12.0%, provided the funded percent of Plan B is at least 90%, the contribution rate for the employer would necessarily need to increase to pay the additional cost. The Consolidated Public Retirement Board sets the contribution rate, therefore, if all actuarial assumptions are met in future years, the increase provided with this bill would be fully funded in ten years.

    The liabilities mentioned above are calculated as of the most recent valuation date, July 1, 2018. If the liabilities are measured at a future date the actuarial cost of the proposed bill will change.

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	$16,005,000.00	$2,430,000.00	7.85 %
Normal Cost of System	N/A	$587,000.00	1.90 %
Past Service Liabilities	$16,005,000.00	$1,843,000.00	5.95 %
Fiscal Year Past Service Amortization Period Ends	N/A	2029	N/A

Explanation of above Actuarial estimates:

    Because the benefits of current and future retirees would be recalculated using the new 3.00% multiplier, the current unfunded actuarial accrued liability of Plan B would increase from ($3.274 million) to approximately $12.731 million. Amortization of that amount (10 years for active members/deferred vested participants and 6 years for retirees/beneficiaries) would increase annual costs to the employer by $1.843 million or 5.95% of base payroll. In addition, because the benefits currently being accrued by active members will be calculated using the higher multiplier, the normal cost of the plan is expected to increase by approximately $587,000 or 1.90% of base payroll.

    In total, the annual cost incurred by increasing the multiplier from 2.75% to 3.00% would require an additional $2.430 million per year in contributions or 7.85% of base payroll. The current employer contribution rate of 14% of base payroll is not sufficient to meet that requirement. An employer contribution rate of about 21.5% of base payroll would be necessary. As written, the plan could sustain the increase in multiplier with an increase in additional funding.

    The liabilities mentioned above are calculated as of the most recent valuation date, July 1, 2018. If the liabilities are measured at a future date the actuarial cost of HB 3070 will change.

Analysis of Impact on Public Pension Policy:

    The current member contribution rate is set by West Virginia Statute at 12%, provided the funded percent of Plan B is at least 90%. Therefore, the increase would require an increase in the employer contribution rate.

    The bill mentions in subsection §15-2A-6(b) of the Statute “that the member is entitled to receive an annuity equal to three percent of his or her final average salary multiplied by the number of years, and fraction of a year, of his or her service at the time of retirement”. It appears that this subsection applies to current and future members but is unclear if the multiplier increase applies to current annuitants (retirees, disabled retirees, and beneficiaries) as of the effective date of the bill.
    HB 3070 should clarify that the benefit multiplier increase applies to current annuitants as well as current and future members of Plan B.

Fiscal Note Summary

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

    The State Police Retirement Plan (Plan B) is funded through State contributions, therefore, the actuarial note summary applies to this section as well.

    However, additional costs of approximately $8,000 would be incurred in making the required changes to the computer software used to administer pension benefits.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2019 Increase/Decrease (use"-")	2020 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	2,438,000	2,430,000
Personal Services	0	0	0
Current Expenses	0	8,000	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	2,430,000	2,430,000
2. Estimated Total Revenues	0	0	0

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

HB 3070 increases the multiplier from 2.75% to 3.00% for the State Police Retirement Plan (Plan B). The bill would have to specify who pays for the $8,000 computer software update. If a proposed bill is silent regarding the computer update, then the CPRB would incur the cost to update the computer software.

Memorandum

    The bill mentions in subsection §15-2A-6(b) of the Statute “that the member is entitled to receive an annuity equal to three percent of his or her final average salary multiplied by the number of years, and fraction of a year, of his or her service at the time of retirement”. It appears that this subsection applies to current and future members but is unclear if the multiplier increase applies to current annuitants (retirees, disabled retirees, and beneficiaries) as of the effective date of the bill.


    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by the Board Actuary. Both the Board and the Board Actuary are available upon request for questions.

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