COMMITTEE SUBSTITUTE

FOR

Senate Bill No. 596

(By Senators Edgell and Bailey)

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[Originating in the Committee on Pensions;

reported February 24, 2003.]

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A BILL to amend sections twenty and twenty-six-a, article twenty-two, chapter eight of the code of West Virginia, one thousand nine hundred thirty-one, as amended, all relating to municipal policemen's and firemen's pension and relief funds; funding options; providing that a municipality may elect normal cost funding following election to fund at one hundred seven percent of prior years' funding; conditions; and providing that where a municipal policemen's and firemen's pension and relief fund is funded less than twenty-five percent, the fund's board of trustees shall mandate an increase in member's contribution not to exceed eight and one- half percent.

Be it enacted by the Legislature of West Virginia:
That sections twenty and twenty-six-a, article twenty-two, chapter eight of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended and reenacted, all to read as follows:
ARTICLE 22. RETIREMENT BENEFITS GENERALLY; POLICEMEN'S PENSION AND RELIEF FUND; FIREMEN'S PENSION AND RELIEF FUND; PENSION PLANS FOR EMPLOYEES OF WATERWORKS SYSTEM, SEWERAGE SYSTEM OR COMBINED WATERWORKS AND SEWERAGE SYSTEM.

§8-22-20. Minimum standards for actuarial soundness.
The board of trustees for each pension and relief fund shall have regularly scheduled actuarial valuation reports prepared by a qualified actuary. All of the following standards must be met:
(a) An actuarial valuation report shall be prepared at least once every three years commencing with the later of: (1) The first day of July, one thousand nine hundred eighty-three; or (2) three years following the most recently prepared actuarial valuation report: Provided, That this most recently prepared actuarial valuation report meets all of the standards of this section.
(b) The actuarial valuation report shall consist of, but is not limited to, the following disclosures: (1) The financial objective of the fund and how the objective is to be attained; (2) the progress being made toward realization of the financial objective; (3) recent changes in the nature of the fund, benefits provided, or actuarial assumptions or methods; (4) the frequency of actuarial valuation reports and the date of the most recent actuarial valuation report; (5) the method used to value fund assets; (6) the extent to which the qualified actuary relies on the data provided and whether the data was certified by the fund's auditor or examined by the qualified actuary for reasonableness; (7) a description and explanation of the actuarial assumptions and methods; and (8) any other information the qualified actuary feels is necessary or would be useful in fully and fairly disclosing the actuarial condition of the fund.
(c) (1) After the thirtieth day of June, one thousand nine hundred ninety-one, and thereafter, the financial objective of each municipality shall not be less than to contribute to the fund annually an amount which, together with the contributions from the members and the allocable portion of the state premium tax fund for municipal pension and relief funds established under section fourteen-d, article three, chapter thirty-three of this code and other income sources as authorized by law, will be sufficient to meet the normal cost of the fund and amortize any actuarial deficiency over a period of not more than forty years: Provided, That in the fiscal year ending the thirtieth day of June, one thousand nine hundred ninety-one, the municipality may elect to make its annual contribution to the fund utilizing an alternative contribution in an amount not less than: (i) One hundred seven percent of the amount contributed for the fiscal year ending the thirtieth day of June, one thousand nine hundred ninety; or (ii) an amount equal to the average of the contribution payments made in the five highest fiscal years beginning with the 1984 fiscal year whichever is greater: Provided, however, That contribution payments in subsequent fiscal years under this alternative contribution method may not be less than one hundred seven percent of the amount contributed in the prior fiscal year: Provided further, That prior to utilizing this alternative contribution methodology the actuary of the fund shall certify in writing that the fund is projected to be solvent under the alternative contribution method for the next consecutive fifteen-year period. For purposes of determining this minimum financial objective: (1) The value of the fund's assets shall be determined on the basis of any reasonable actuarial method of valuation which takes into account fair market value; and (2) all costs, deficiencies, rate of interest, and other factors under the fund shall be determined on the basis of actuarial assumptions and methods which, in aggregate, are reasonable (taking into account the experience of the fund and reasonable expectations) and which, in combination, offer the qualified actuary's best estimate of anticipated experience under the fund: Provided, that after the first day of September two thousand three, this section in no way prohibits a municipality from electing to revert back to the standard method of funding to contribute to the fund annually an amount which, together with the contributions from the members and the allocable portion of the state premium tax fund for municipal pension and relief funds established under section fourteen-d, article three, chapter thirty-three of this code and other income sources as authorized by law, will be sufficient to meet the normal cost of the fund and amortize any actuarial deficiency over a period of not more than forty years from the first day of July nineteen hundred ninety-one.
(2) No municipality may anticipate or use in any manner any state funds accruing to the police or firemen's pension fund to offset the minimum required funding amount for any fiscal year.
(3) Notwithstanding any other provision of this section or article to the contrary, each municipality shall contribute annually to the fund an amount which may not be less than the normal cost, as determined by the actuarial report.
(d) For purposes of this section the term "qualified actuary" means only an actuary who is a member of the society of actuaries or the American academy of actuaries. The qualified actuary shall be designated a fiduciary and shall discharge his or her duties with respect to a fund solely in the interest of the members and member's beneficiaries of that fund. In order for the standards of this section to be met, the qualified actuary shall certify that the actuarial valuation report is complete and accurate and that in his or her opinion the technique and assumptions used are reasonable and meet the requirements of this section of this article.
(e) The cost of the preparation of the actuarial valuation report shall be paid by the fund.
(f) Notwithstanding any other provision of this section, for the fiscal year ending the thirtieth day of June, one thousand nine hundred ninety-one, the municipality may calculate its annual contribution based upon the provisions of the supplemental benefit provided in this article enacted during the one thousand nine hundred ninety-one regular session of the Legislature.
§8-22-26a. Supplemental pension benefits entitlement; benefit payable; application of section; construction.
(a) Except as otherwise provided in this section, all retirees, surviving beneficiaries, disability pensioners or future retirees shall receive as a supplemental pension benefit an annualized monthly amount commencing on the first day of July, based on a percentage increase equal to any increase in the consumer price index as calculated by the United States Department of Labor, Bureau of Statistics, for the preceding year: Provided, That the supplemental pension benefit specified herein shall not exceed four percent per year: Provided, however, That no retiree shall be eligible for the supplemental pension benefit specified herein until the first day of July after the expiration of two years from the date of retirement of said retiree: Provided further, That persons retiring prior to the effective date of this section shall receive the supplemental benefit provided in this section immediately upon retirement and shall not be subject to the two year delay: And provided further, That the supplemental benefit shall only be calculated on the allowable amount, which is the first fifteen thousand dollars of the total annual benefit paid. If at any time, after the supplemental benefit becomes applicable, the total accumulated percentage increase in benefit on the allowable amount becomes less than seventy-five percent of the total accumulated percentage increase in the consumer price index over that same period of time, the four percent limitation shall be inapplicable until such time as the supplemental benefit paid equals seventy-five percent of the accumulated increase in the consumer price index. The supplemental pension benefit payable under the provisions of this section shall be paid in equal monthly installments.
(b) Upon commencement of the payment of death benefits pursuant to section twenty-six of this article, there shall be calculated on the allowable amount, which is the first fifteen thousand dollars of the annual allowable benefit under said section twenty-six, the supplemental benefit provided in subsection (a) of this section using the date that the retirement benefit provided for pursuant to section twenty-five of this article began as the base year. The amount of the death benefit provided pursuant to section twenty-six of this article shall be calculated without regard to any supplemental benefit previously paid under this section. After the initial calculation made pursuant to this subsection the beneficiary of the benefits provided for pursuant to section twenty-six, shall, after reindexation, thereafter receive the supplemental benefit provided for in subsection (a) of this section.
(c) Persons becoming disabled and eligible for a benefit under subsection (d), section twenty-four of this article after the first day of January, one thousand nine hundred ninety-one, shall receive as an annualized monthly supplemental benefit commencing on each July the first day of July an amount based on a percentage increase equal to any increase in the consumer price index as calculated by the United States Department of Labor, Bureau of Statistics, for the preceding year: Provided, That the supplemental pension benefit shall not exceed four percent per year: Provided, however, That the benefit provided herein shall not commence until the first day of July in the second year after what would have been the earliest service retirement date pursuant to section twenty-five of this article for the person receiving the disability benefit: Provided further, That for persons becoming eligible for a benefit under subsection (d), article twenty-four of this section who were not employed in the preceding year and file a copy of his or her income tax return by the fifteenth of April each year, evidencing said lack of employment, the benefit provided herein shall commence on the first day of July in the second year after the date of disablement: And provided further, That the supplemental benefit shall only be calculated on the allowable amount, which is the first fifteen thousand dollars of the total annual benefit paid. If at any time after the commencement of the payment of the supplemental benefit provided under this subsection the total accumulated percentage increase in benefit on the allowable amount becomes less than seventy-five percent of the total accumulated increase in the consumer price index for that same period of time, the four percent limitation shall be inapplicable until such time as the supplemental benefit paid equals seventy-five percent of the accumulated increase in the consumer price index.
(d) Persons receiving a disability pension pursuant to section twenty-four of this article prior to the first day of January, one thousand nine hundred ninety-one, shall receive commencing each July first, as an annualized monthly supplemental benefit an amount based on a percentage increase equal to any increase in the consumer price index as calculated by the United States Department of Labor, Bureau of Statistics, for the preceding year: Provided, That the supplemental benefit provided herein shall not exceed two percent per year: Provided, however, That beginning the first day of July two years after what would have been the earliest service retirement date pursuant to section twenty-five of this article the supplemental benefit provided herein shall not exceed four percent per year. The amount of supplemental benefit provided in this subsection shall not exceed four percent beginning the first day of July in any twelve-month period for any pensioner who files a certified copy of his or her tax return evidencing that said pensioner was unemployed in the preceding year and received no earned income. The tax return shall be filed by the fifteenth of April in any such year. If at any time after the first day of July in the second year from what would have been the earliest service retirement date pursuant to section twenty-five of this article the total accumulated percentage increase in the supplemental benefit provided pursuant to this subsection on the allowable amount becomes less than the seventy-five percent of the total accumulated percentage increase in the consumer price index over that same period of time, the maximum percentage shall be inapplicable until such time as the percentage increase in the supplemental benefit paid equals seventy-five percent of the accumulated increase in the consumer price index. The supplemental benefit provided in this subsection shall only be calculated on the allowable amount, which is the first fifteen thousand dollars of the annual benefit paid.
(e) Any supplemental benefits paid during a period of nonentitlement may be withheld out of subsequent regular monthly pension benefits.
(f) During the fiscal year ending on the thirtieth day of June, one thousand nine hundred ninety-six, and each year thereafter, each municipal policemen's and firemen's pension fund shall be reviewed by a qualified actuary who shall make a determination as to its actuarial soundness. Based upon the actuary's determination of the actuarial soundness of the fund, the actuary shall certify to the board of trustees of the fund the amount of increase in supplemental benefits, if any, which may be paid, and which will preserve the minimum standards for actuarial soundness of the fund, as set forth in section twenty of this article. The board of trustees shall increase supplemental benefits by an amount which is equal to the actuary's certified recommendation, up to the four percent limit contained in this section or the increase in the consumer price index, whichever is less. If the actuary determines that it is necessary to preserve the actuarial soundness of the fund, The board of trustees of the fund shall increase the percentage of the members' contribution from seven percent to the amount certified by the actuary not to exceed eight and one-half percent, to preserve the actuarial soundness of the fund if the fund is less than twenty-five percent funded as reported by the West Virginia state treasurer's policemen's and firemen's pensions funds summary report for the previous year, but only for so long as is necessary to achieve the minimum standards for actuarial soundness required by section twenty of this article. In any year in which there is no supplemental benefit paid, such year shall not be included in the reindexation calculation provided pursuant to this section.
(g) This section shall be construed liberally to effectuate the purpose of establishing minimum pension benefits under this article for members and surviving spouses.


NOTE: The purpose of this bill is to improve the actuarial soundness of municipal police and fire pensions. The bill allows a municipality to revert to normal cost funding if the municipality can amortize any actuarial deficiency over a forty-year time period. The bill also requires municipal plans which are funded less than twenty-five cents on the dollar to increase member contribution to eight and one-half percent.

Strike-throughs indicate language which would be stricken from the present law; and underscoring indicates new language which would be added.