Actuarial Fiscal Note
Retirement Systems Impacted by Legislation:
Teachers Retirement System
FUND(S):
2601
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 ) and Section 18-7A-28e ( a ) prohibits certain increases to active and retired members in TRS. See the Pension Committee chairman for details.
Based on a 2002 COLA study for TRS, it is estimated that the increase in the UAAL for TRS would be approximately $1,750,000,000. This would require 10 year amortization payments of $246,000,000 per year. The expected increase in Normal Cost was $24,000,000. The total annual increase in contributions totals $270,000,000.
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 |
$1,750,000,000.00 |
$270,000,000.00 |
19.20 % |
| Normal Cost of System |
N/A |
$24,000,000.00 |
1.70 % |
| Past Service Liabilities |
$1,750,000,000.00 |
$246,000,000.00 |
17.50 % |
Fiscal Year Past Service
Amortization Period Ends |
N/A |
FY2019 |
N/A |
Explanation of above Actuarial estimates:
The cost estimate is based on a 2002 actuarial study of COLA for TRS. Amounts have been projected to 2009. This is the most up to date information currently available.
If the bill is to be seriously considered for passage, it is recommended that the legislature request an updated study to be completed. Current costs shown could be understated due to the inclusion of TDC transfers into TRS effective July 1, 2008 and new hires into TRS following the 2005 reopening of the TRS system. Both of these events occurred after the original 2002 study.
Analysis of Impact on Public Pension Policy:
This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e( c ) and Section 18-7A-28e ( a ) prohibits certain increases to active and retired members in TRS. See the Pension Committee chairman for details.
If adopted, TRS funded percentage as of July 1, 2008 would be reduced to 41%. The TRS Actuarially Required Contribution would increase by 66%. These significant cost estimates are based on a 2002 study and may understate the liabilities and contributions. Completion of an updated study is recommended.
The additional liabilities would undermine the funding progress made in TRS in recent years. Further, substantial market losses on Trust Fund assets are expected to significantly reduce the TRS funded position July 1, 2009. Those losses are expected to generate a significant increase in contribution requirement starting in FY2011.
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e( c ) and Section 18-7A-28e ( a ) prohibits certain increases to active and retired members in TRS. See the Pension Committee chairman for details.
Based on a 2002 COLA study for TRS, it is estimated that the increase in the UAAL for TRS would be approximately $1,750,000,000. This would require 10 year amortization payments of $246,000,000 per year. The expected increase in Normal Cost was $24,000,000. The total annual increase in contributions totals $270,000,000.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2009
Increase/Decrease
(use"-") |
2010
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
270,000,000 |
270,000,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
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 Fiscal Note estimates (include possible long-range effect):
The cost estimate is based on a 2002 actuarial study of COLA for TRS. Amounts have been projected to 2009. This is the most up to date information currently available.
If the bill is to be seriously considered for passage, it is recommended that the legislature request an updated study to be completed. Current costs shown could be understated due to the inclusion of TDC transfers into TRS effective July 1, 2008 and new hires into TRS following the 2005 reopening of the TRS system. Both of these events occurred after the original 2002 study.
Memorandum
This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e( c ) and Section 18-7A-28e ( a ) prohibits certain increases to active and retired members in TRS. See the Pension Committee chairman for details.
If adopted, TRS funded percentage as of July 1, 2008 would be reduced to 41%. The TRS Actuarially Required Contribution would increase by 66%. These significant cost estimates are based on a 2002 study and may understate the liabilities and contributions. Completion of an updated study is recommended.
The additional liabilities would undermine the funding progress made in TRS in recent years. Further, substantial market losses on Trust Fund assets are expected to significantly reduce the TRS funded position July 1, 2009. Those losses are expected to generate a significant increase in contribution requirement starting in FY2011.
Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email Address: harry.w.mandel@wv.gov