FISCAL NOTE
Date Requested: January 31, 2022
Time Requested: 02:15 PM |
| Agency: |
Public Employees Insurance Agency (PEIA) |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2383 |
Introduced |
SB512 |
|
|---|
| CBD Subject: |
Retirement |
|---|
|
FUND(S):
Retiree Health Benefit Trust Fund
Sources of Revenue:
Special Fund
Legislation creates:
Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The purpose of this bill is to expand the PEIA Finance Board’s discretion to include subsidies in its financial plans for employees who meet certain criteria. This will allow the finance board to expand the number of employees or retirees eligible to participate in the West Virginia Other Post Employment Benefit Plan (OPEB) and receive subsidized healthcare insurance.
This bill proposes expansion of eligibility for the OPEB Plan to allow the following individuals to pay premiums at a subsidized rate:
1. Active or retired employees who were hired before July 1, 2010, but who
separated from public service and returned within 2 years of their
separation. These individuals would see their hire dates restored to
the original pre-July 1, 2010, hire date.
2. Active or retired employees who separated from public service with more
than 10 years of service prior to July 1, 2010, and returned within 10
years of their separation. These individuals would receive an adjusted
hire date computed by adding the period of separation to the original
pre-July 1, 2010, hire date.
Currently, two classes of employees hired on or after July 1, 2010, are not required to pay the unsubsidized rate:
3. Active employees who were originally hired before July 1, 2010, and who
have a break in service of not greater than two years after July 1,
2010.
4. Retired employees who retired before July 1, 2010, come back to active
service after July 1, 2010, and then go back into retirement. In those
cases, the original hire date will apply.
PEIA interprets the individuals discussed in note 1 above to be covered by eligibility rules in note 3 of the current benefits. However, the individuals described in note 2 are not covered by the current OPEB eligibility rules.
PEIA conducted an analysis on new enrollments over the last 10 years to determine a rate of retention for enrollees who attained 10 years of service from their date of hire. Approximately 1.1% - 3% of the average 3,600 new enrollees per year attain 10 years of service.
The current per retiree OPEB cost as of the 2020 valuation is $10,207 because of unprecedented and historically low Medicare Advantage Plan (MAPD) rates. Assuming 3,600 new enrollments per year from 1990 to 2000, and assuming 1.1% - 3% of those enrollees retained public employment to achieve 10 years’ service, there is an exposure for 410 to 1,080 individuals to incur a break from public service and remain eligible to return by 2020 paying subsidized rates, with an adjusted hire date, per the proposed bill. The cost exposure to the OPEB Plan is between $4,184,870 and 11,023,560 additional expenses annually for entrants who return to the plan under these circumstances.
PEIA cautions that adding new entrants to the plan compromises the historically low OPEB liability and could dramatically change the OPEB balance. The recent MAPD rate reduction and closure of the plan to new entrants shifted the OPEB balance to an Asset of $29,735,000 as of June 30, 2021. This is a monumental achievement when compared to the $7 billion OPEB Liability as of June 30, 2009. These reductions are the result of the significant work and sacrifices by many West Virginians over the past decade to achieve an affordable OPEB Plan for the State of West Virginia.
If passed, future audits of the OPEB valuation will expose the State’s perceived lack of dedication to these previously enacted OPEB cost control policies. This will result in a lack of confidence in the State’s resolve regarding its OPEB Plan, potentially shifting the OPEB balance back to a lability.
Opening the current OPEB Plan to new entrants, jeopardizing the comparably low OPEB liability, also compromises the current use of a 6.5% Single Discount Rate in the OPEB Valuation. Lowering the Single Discount Rate by 1% would result in an OPEB Liability balance of $159,559,746 instead of the OPEB Asset balance per the most recent Valuation report. An OPEB liability could result in lower scoring from credit rating agencies, increasing financing costs for the State.
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 |
6,838,918 |
0 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
6,838,918 |
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 estimates (including long-range effect):
Assuming 3,600 new enrollments per year.
Assuming 1.1%-3% retained public employment to achieve 10 years’ service.
The cost exposure to the OPEB Plan is between $4,184,870 and 11,023,560, and shown above at the midpoint of the range $6,838,918.
Sensitivity Analysis:
Lowering the Single Discount Rate by 1% would result in an OPEB Liability balance of $159,559,746 instead of the OPEB Asset balance per the most recent Valuation report.
Memorandum
Please note individuals with an original hire date before the year 2000 which have accumulated 10 years of service as of July 1, 2010, with multiple breaks in public service over their tenure, may be interpreted to qualify for re-entry within 10 years of their last break, at the subsidized rate and receive the adjusted hire date per this proposed bill.
There is not sufficient data readily available to identify the size of the population of individuals with multiple breaks in service or the corresponding financial impact.
Person submitting Fiscal Note: April Taylor
Email Address: april.a.taylor@wv.gov