Actuarial Fiscal Note

Date Requested:February 21, 2019
Time Requested:02:35 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2743 Amendment HB2803
CBD Subject: Education (K12)

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).


    The amended HB 2803 would permit retired teachers to substitute teach a total of 160 days each year without reducing their retirement benefit.
    
    The amended HB 2803 would violate the West Virginia Statute §18-7A-28e (c), known as “2005 Pension Reform”, which prohibits the increase of existing benefits or the creation of new benefits for active members of the Teachers’ Retirement System until the limitation sunsets on July 1, 2034.
    
    Under current West Virginia State Law, a retired teacher can substitute teach a total of 140 days each year without reducing their retirement benefit. By allowing retired teachers to substitute teach up to 160 days without reducing their retirement benefit, the amended HB 2803 would create a new benefit for active TRS participants.
    
    In addition, the amended HB 2803 would effectively allow retired teachers to return to almost full-time employment as a teacher and continue to receive their retirement benefit without reduction. By allowing teachers to work almost full-time and receive their retirement benefit unadjusted the bill could violate the IRS in-service distribution rule and possibly lead to the TRS defined benefit plan being disqualified by the IRS.
    
    The amended HB 2803 would likely change the demographic experience of TRS because teachers would be encouraged to retire earlier than currently assumed because they could return to almost full-time employment as a teacher and continue to receive their retirement benefit unadjusted. This change in retirement age could significantly increase the Unfunded Actuarial Accrued Liability and Normal Cost for TRS.
    



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 $999,999,999.00 $999,999,999.00 9.99 %
Normal Cost of System N/A $999,999,999.00 9.99 %
Past Service Liabilities $999,999,999.00 $999,999,999.00 9.99 %
Fiscal Year Past Service
Amortization Period Ends
N/A 9999 N/A


Explanation of above Actuarial estimates:


    The amended HB 2803 would likely change the demographic experience of TRS because teachers would be encouraged to retire earlier than currently assumed because they could return to almost full-time employment as a teacher and continue to receive their retirement benefit unadjusted. This change in retirement age could significantly increase the Unfunded Actuarial Accrued Liability and Normal Cost for TRS.

Analysis of Impact on Public Pension Policy:


    The amended HB 2803 would violate the West Virginia Statute §18-7A-28e (c), known as “2005 Pension Reform”, which prohibits the increase of existing benefits or the creation of new benefits for active members of the Teachers’ Retirement System until the limitation sunsets on July 1, 2034.
    
    Under current West Virginia State Law, a retired teacher can substitute teach a total of 140 days each year without reducing their retirement benefit. By allowing retired teachers to substitute teach up to 160 days without reducing their retirement benefit, the amended HB 2803 would create a new benefit for active TRS participants.
    
    In addition, the amended HB 2803 would effectively allow retired teachers to return to almost full-time employment as a teacher and continue to receive their retirement benefit without reduction. By allowing teachers to work almost full-time and receive their retirement benefit unadjusted the bill could violate the IRS in-service distribution rule and possibly lead to the TRS defined benefit plan being disqualified by the IRS.
    
    The amended HB 2803 would likely change the demographic experience of TRS because teachers would be encouraged to retire earlier than currently assumed because they could return to almost full-time employment as a teacher and continue to receive their retirement benefit unadjusted. This change in retirement age could significantly increase the Unfunded Actuarial Accrued Liability and Normal Cost for TRS.
    



Fiscal Note Summary


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


    The amended HB 2803 would permit retired teachers to substitute teach a total of 160 days each year without reducing their retirement benefit.
    
    The amended HB 2803 would violate the West Virginia Statute §18-7A-28e (c), known as “2005 Pension Reform”, which prohibits the increase of existing benefits or the creation of new benefits for active members of the Teachers’ Retirement System until the limitation sunsets on July 1, 2034.
    
    Under current West Virginia State Law, a retired teacher can substitute teach a total of 140 days each year without reducing their retirement benefit. By allowing retired teachers to substitute teach up to 160 days without reducing their retirement benefit, the amended HB 2803 would create a new benefit for active TRS participants.
    
    In addition, the amended HB 2803 would effectively allow retired teachers to return to almost full-time employment as a teacher and continue to receive their retirement benefit without reduction. By allowing teachers to work almost full-time and receive their retirement benefit unadjusted the bill could violate the IRS in-service distribution rule and possibly lead to the TRS defined benefit plan being disqualified by the IRS.
    
    The amended HB 2803 would likely change the demographic experience of TRS because teachers would be encouraged to retire earlier than currently assumed because they could return to almost full-time employment as a teacher and continue to receive their retirement benefit unadjusted. This change in retirement age could significantly increase the Unfunded Actuarial Accrued Liability and Normal Cost for TRS.
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 999,999,999 999,999,999 999,999,999
Personal Services 999,999,999 999,999,999 999,999,999
Current Expenses 999,999,999 999,999,999 999,999,999
Repairs and Alterations 999,999,999 999,999,999 999,999,999
Assets 999,999,999 999,999,999 999,999,999
Other 999,999,999 999,999,999 999,999,999
2. Estimated Total Revenues 999,999,999 999,999,999 999,999,999


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


    The amended HB 2803 would violate the West Virginia Statute §18-7A-28e (c), known as “2005 Pension Reform”, which prohibits the increase of existing benefits or the creation of new benefits for active members of the Teachers’ Retirement System until the limitation sunsets on July 1, 2034.
    
    Under current West Virginia State Law, a retired teacher can substitute teach a total of 140 days each year without reducing their retirement benefit. By allowing retired teachers to substitute teach up to 160 days without reducing their retirement benefit, the amended HB 2803 would create a new benefit for active TRS participants.
    
    In addition, the amended HB 2803 would effectively allow retired teachers to return to almost full-time employment as a teacher and continue to receive their retirement benefit without reduction. By allowing teachers to work almost full-time and receive their retirement benefit unadjusted the bill could violate the IRS in-service distribution rule and possibly lead to the TRS defined benefit plan being disqualified by the IRS.
    
    The amended HB 2803 would likely change the demographic experience of TRS because teachers would be encouraged to retire earlier than currently assumed because they could return to almost full-time employment as a teacher and continue to receive their retirement benefit unadjusted. This change in retirement age could significantly increase the Unfunded Actuarial Accrued Liability and Normal Cost for TRS.
    



Memorandum


    The amended HB 2803 would violate the West Virginia Statute §18-7A-28e (c), known as “2005 Pension Reform”, which prohibits the increase of existing benefits or the creation of new benefits for active members of the Teachers’ Retirement System until the limitation sunsets on July 1, 2034.
    
    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.
    



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