Fiscal/Actuarial Note
Date Requested:February 25, 2008
Time Requested:11:25 AM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2008R2036 Comm. Sub. HB4471
CBD Subject: Making certain changes to the West Virginia State Police Retirement System
Retirement Systems Impacted by Legislation:
State Police Plan B
FUND(S)
Plan B 2162
Sources of Revenue
You must select Revenue Source(s)!
General Fund
Does the proposed legislation create:
You must make a selection(s)!
Neither Program nor Fund

    The bill reduces the regular unreduced retirement age to the earlier of age 50 with 25 years service or age 52 with 20 years service. .
    
    The increase in UAAL as of July 1, 2008 is $1,862,000 for active members with no changes for current retirees. The increase in the Active UAAL is amortized over 10 years at $262,000 per year through FY2018.
    
    The Normal Cost rate for active members increases by 0.82% of pay, or $164,000 for FY2009, and continues each year into the future increasing the employer Normal Cost percentage to 11.68% of pay.
    
    The additional contribution schedule due to the bill is as follows:
    
     Fiscal Additional Percent
     Year Contribution of Pay
     2009 $426,000 2.13%
     2010 $436,000 2.06%
     2011 $446,000 1.99%
     2012 $457,000 1.92%
     2013 $469,000 1.86%
     2014 $481,000 1.80%
     2015 $494,000 1.74%
     2016 $508,000 1.69%
     2017 $523,000 1.64%
     2018 $539,000 1.60%
     2019 $293,000 0.82%
    
    Currently, the State Police contribution rate is set by the CPRB Board at 12.0% of payroll which is sufficient to meet the funding targets for the Plan for current benefits as determined in the July 1, 2007 Actuarial Valuation for Plan B.
    
    The increased requirements under the Bill provide for a contribution rate above the current 12%. The bill increases the member contribution rate to 13.25% and sets a minimum employer contribution rate of 13.25%. These increases are effective for the ten year period July 1, 2008 through June 30, 2018. Based on the July 1, 2007 Actuarial Valuation and the cost increase study, the increased contribution rates exceed the amount required to fund the increased benefits under the Plan B funding targets. This excess is approximately 0.5% of payroll in the first year of the schedule, or about $100,000 for FY2009.
    
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 $1,862,000.00 $426,000.00 2.13 %
Normal Cost of System N/A $164,000.00 0.82 %
Past Service Liabilities $1,862,000.00 $262,000.00 1.31 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2018 N/A
Explanation of above estimates
    The cost were taken from a study of the July 1, 2007 actuarial valuation data by applying the increased benefits under the Bill. Retirement usage assumptions were modified to be consistent with the earlier unreduced retirement provisions based on the usage assumed under State Police Plan A. The improvement costs were projected to a July 1, 2008 effective date.
    
    It is noted that the UAAL created under the Bill is subject to 10 year level dollar amortization payments resulting in slightly decreasing contribution rates over the 10 year period and reducing to Normal Cost only July 1, 2018.
Analysis of Impact on Public Pension Policy
    The changes in the unreduced retirement age eligibility are consistent with law enforcement plans both within the state and plans maintained in other states..
    
    The bill increases the member contribution rate by 1.25% of pay to 13.25% and sets a minimum employer contribution rate of 13.25%. Due to the level dollar amortization requirement for the newly created UAAL, the additional contributions required to amortize the UAAL decline as a percentage of pay each year. It is recommended that the minimum employer contribution rate expire at an earlier date thereby continuing the ability of the Board to set the employer contribution rate at a level necessary to meet the Plan B funding targets based on future actuarial valuations. A termination date for the minimum employer percentage of June 30, 2009 or 2010 would be recommended to allow future experience to be factored into the contribution amounts.
    
    It is also noted that the 13.25% contribution rate seems to be based on a cost sharing between the members and the employer for the increased costs under the Bill. Based on the actuarial costs of the provisions of the Committee Substitute, a cost sharing rate of 13.0% for member and employer would meet the costs under this Actuarial Note. This rate, however, provides no experience risk margin for future plan experience and transfers all additional risk into the employer contribution rate.
Fiscal Note Summary

Explain in a clear and concise manner what effect this measure will have on costs and revenues of state government.

    The bill reduces the regular unreduced retirement age to the earlier of age 50 with 25 years service or age 52 with 20 years service. .
    
    The increase in UAAL as of July 1, 2008 is $1,862,000 for active members with no changes for current retirees. The increase in the Active UAAL is amortized over 10 years at $262,000 per year through FY2018.
    
    The Normal Cost rate for active members increases by 0.82% of pay, or $164,000 for FY2009, and continues each year into the future increasing the employer Normal Cost percentage to 11.68% of pay.
    
    The additional contribution schedule due to the bill is as follows:
    
     Fiscal Additional Percent
     Year Contribution of Pay
     2009 $426,000 2.13%
     2010 $436,000 2.06%
     2011 $446,000 1.99%
     2012 $457,000 1.92%
     2013 $469,000 1.86%
     2014 $481,000 1.80%
     2015 $494,000 1.74%
     2016 $508,000 1.69%
     2017 $523,000 1.64%
     2018 $539,000 1.60%
     2019 $293,000 0.82%
    
    Currently, the State Police contribution rate is set by the CPRB Board at 12.0% of payroll which is sufficient to meet the funding targets for the Plan for current benefits as determined in the July 1, 2007 Actuarial Valuation for Plan B.
    
    The increased requirements under the Bill provide for a contribution rate above the current 12%. The bill increases the member contribution rate to 13.25% and sets a minimum employer contribution rate of 13.25%. These increases are effective for the ten year period July 1, 2008 through June 30, 2018. Based on the July 1, 2007 Actuarial Valuation and the cost increase study, the increased contribution rates exceed the amount required to fund the increased benefits under the Plan B funding targets. This excess is approximately 0.5% of payroll in the first year of the schedule, or about $100,000 for FY2009.
    

Fiscal Note Detail
Show over-all effect in Item 1 and 2 and, in Item 3, give an explanation of Breakdown by fiscal year, including long-range effect.
Effect of Proposal Fiscal Year
2008
Increase/Decrease
(use"-")
2009
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 426000 436000
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other 426000 436000
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    The cost were taken from a study of the July 1, 2007 actuarial valuation data by applying the increased benefits under the Bill. Retirement usage assumptions were modified to be consistent with the earlier unreduced retirement provisions based on the usage assumed under State Police Plan A. The improvement costs were projected to a July 1, 2008 effective date.
    
    It is noted that the UAAL created under the Bill is subject to 10 year level dollar amortization payments resulting in slightly decreasing contribution rates over the 10 year period and reducing to Normal Cost only July 1, 2018.


Memorandum
    The changes in the unreduced retirement age eligibility are consistent with law enforcement plans both within the state and plans maintained in other states..
    
    The bill increases the member contribution rate by 1.25% of pay to 13.25% and sets a minimum employer contribution rate of 13.25%. Due to the level dollar amortization requirement for the newly created UAAL, the additional contributions required to amortize the UAAL decline as a percentage of pay each year. It is recommended that the minimum employer contribution rate expire at an earlier date thereby continuing the ability of the Board to set the employer contribution rate at a level necessary to meet the Plan B funding targets based on future actuarial valuations. A termination date for the minimum employer percentage of June 30, 2009 or 2010 would be recommended to allow future experience to be factored into the contribution amounts.
    
    It is also noted that the 13.25% contribution rate seems to be based on a cost sharing between the members and the employer for the increased costs under the Bill. Based on the actuarial costs of the provisions of the Committee Substitute, a cost sharing rate of 13.0% for member and employer would meet the costs under this Actuarial Note. This rate, however, provides no experience risk margin for future plan experience and transfers all additional risk into the employer contribution rate.
Person Submitting Fiscal Note
Harry W. Mandel, MAAA, MSPA, EA, Board Actuary
Email
Harry.W.Mandel@wv.gov