Actuarial Fiscal Note

Retirement Systems Impacted by Legislation:

TRS and PERS

FUND(S):

TRS 2601 and PERS 2510

Sources of Revenue:

General Fund

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).

    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) & (d) prohibits increases to any active member benefits under TRS through June 30, 2034. See the Pension Committee chairman for details.

    The bill provides benefit increases to active members and annuitants under PERS and TRS in the form of an automatic 3% increase in their monthly annuity payments upon the attainment of age 70. Increases are allowable under 2005 Pension Reform Legislation except for TRS active members as noted above. The cost analysis includes the costs of the prohibited benefits for information purposes only.

    TRS active members would increase the Normal Cost of TRS by $803,000 for FY2008, or 0.10% of future annual payroll. The UAAL would increase by $61,750,000. The additional UAAL would require 10 year amortization payments of $8,677,000 for FY2008-FY2017.

    TRS annuitants and inactive members would increase the UAAL by $36,529,000. The additional UAAL would require 6 year amortization payments of $7,506,000 for FY2008-FY2013.

    PERS active members would increase the Normal Cost of PERS by $1,275,000 for FY2008, or 0.11% of future annual payroll. The UAAL would increase by $31,054,000. The additional UAAL would require 10 year amortization payments of $4,363,000 for FY2008-FY2017.

    PERS annuitants and inactive members would increase the UAAL by $18,009,000. The additional UAAL would require 6 year amortization payments of $3,700,000 for FY2008-FY2013.

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	$147,342,000.00	$26,324,000.00	1.00 %
Normal Cost of System	N/A	$2,078,000.00	0.00 %
Past Service Liabilities	$147,342,000.00	$24,246,000.00	1.00 %
Fiscal Year Past Service Amortization Period Ends	N/A	FY 2017	N/A

Explanation of above Actuarial estimates:

    The increases in Normal Cost and Actuarial Accrued Liabilities for each system were determined from the July 1, 2006 Actuarial Valuation data for each system. Required funding is based on 2005 Pension Reform rules. The TRS prohibition to active benefit increases was not taken into account for liability and funding purposes.

    Since both active and inactive improvements are included, cost will vary over the next 11 years. The following shows the expected contributions over that 11 year period.

    Fiscal Year TRS Contributions PERS Contributions Total Bill Contributions
     2008 $16,986,000 $9,338,000 $26,324,000
     2009 $17,012,000 $9,383,000 $26,395,000
     2010 $17,039,000 $9,429,000 $26,468,000
     2011 $17,066,000 $9,477,000 $26,543,000
     2012 $17,094,000 $9,526,000 $26,620,000
     2013 $17,123,000 $9,577,000 $26,700,000
     2014 $9,647,000 $5,930,000 $15,577,000
     2015 $9,678,000 $5,985,000 $15,663,000
     2016 $9,710,000 $6,042,000 $15,752,000
     2017 $9,743,000 $6,101,000 $15,844,000
     2018 $1,100,000 $1,799,000 $2,899,000

Analysis of Impact on Public Pension Policy:

    The bill basically provides a 3% cost of living type of adjustment automatically whenever a retiree attains age 70, or for a beneficiary when the retiree would have attained age 70. As drafted both current retirees and all future retirees would receive the increase. The bill does not address the question of whether or not an active member retiring after age 70 would receive the additional 3% upon retirement or if the increase would be forfeited.

    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) & (d) prohibits increases to any active member benefits under TRS through June 30, 2034. The bill would need to be amended to either exclude this increase or it would require amendment of the 2005 Pension Reform provisions. Amendment of Pension Reform provisions could impact the West Virginia state credit ratings.

Fiscal Note Summary

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

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2007 Increase/Decrease (use"-")	2008 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	26,324,000	26,700,000
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	26,324,000	26,700,000
2. Estimated Total Revenues	0	0	0

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

Memorandum

Person submitting Fiscal Note: Harry W. Mandel, MAAA, MSPA, Board Actuary
Email Address: HMandel@wvadmin.com