Actuarial Fiscal Note
Retirement Systems Impacted by Legislation:
Public Employees Retirement System
FUND(S):
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).
It is the opinion of the Board Actuary that this bill provides discriminatory temporary re-employment benefits for certain retired PERS members prohibited under the federal Internal Revenue Code. As such, passage of this bill as drafted could result in the disqualification of PERS tax qualified status.
Corrections necessary to perfect the bill and eliminate the discriminatory provisions are expected to result in a significant increase in the actuarial costs of PERS. As such, the corrected bill would violate 2005 Pension Reform restrictions under code section 5-10-22h ( c ) which requires PERS to maintain an 85.0% funded status to allow additional benefit increases to currently active members. As of the latest July 1, 2008 Actuarial Valuation for PERS, the funded percentage was 84.2%.
Actuarial costs for the bill as drafted were not run since these provisions violate federal pension statutes. Actuarial costs for corrected provisions could not be run since the detailed corrected provisions would need to be taken into account to complete an actuarial impact analysis.
See Pension Committee Chairman for details regarding restrictions.
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 |
$999,999,999.00 |
$999,999,999.00 |
99.99 % |
| Normal Cost of System |
N/A |
$999,999,999.00 |
99.99 % |
| Past Service Liabilities |
$999,999,999.00 |
$999,999,999.00 |
99.99 % |
Fiscal Year Past Service
Amortization Period Ends |
N/A |
|
N/A |
Explanation of above Actuarial estimates:
The bill provides for development of a “by state agency policy” allowing certain critical need jobs to be filled by retirees through unrestricted temporary employment. Approval of policies and individuals allowed to participate are reserved for the cabinet secretary with the approval of the governor.
The restrictions in the bill violate federal anti-discrimination requirements by providing the cabinet secretary the right to choose retirees who may be re-employed. Anti-discrimination requirements provide that all members must be given identical rights and such rights may not be at the discretion of the employer. PERS would need to be amended to allow all “normal retirees” to be able to elect continued employment WITHOUT THE APPROVAL OF EITHER THE AGENCY OR THE CABINET SECRETARY.
The changes necessary to meet federal anti-discrimination guidelines are expected to significantly increase both the Normal Cost and Unfunded Actuarial Accrued Liabilities of PERS. Such increases would be a violation of 2005 Pension Reform statutes.
Analysis of Impact on Public Pension Policy:
This bill as drafted provides a discriminatory public pension policy that is in violation of anti-discrimination provisions under the Internal Revenue Code.
The bill with corrective provisions provides a uniform public pension policy of allowing unlimited double dipping of future retirees while continuing to work without control.
The corrective bill would violate public pension policy set when the Legislature adopted 2005 Pension Reform restrictions for future benefit improvements. To be allowable, 2005 Pension Reform restrictions would need to be amended by statute. Such amendment would be contrary to public pension policy set by the Legislature.
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
It is the opinion of the Board Actuary that this bill provides discriminatory temporary re-employment benefits for certain retired PERS members prohibited under the federal Internal Revenue Code. As such, passage of this bill as drafted could result in the disqualification of PERS tax qualified status.
Corrections necessary to perfect the bill and eliminate the discriminatory provisions are expected to result in a significant increase in the actuarial costs of PERS. As such, the corrected bill would violate 2005 Pension Reform restrictions under code section 5-10-22h ( c ) which requires PERS to maintain an 85.0% funded status to allow additional benefit increases to currently active members. As of the latest July 1, 2008 Actuarial Valuation for PERS, the funded percentage was 84.2%.
Actuarial costs for the bill as drafted were not run since these provisions violate federal pension statutes. Actuarial costs for corrected provisions could not be run since the detailed corrected provisions would need to be taken into account to complete an actuarial impact analysis.
See Pension Committee Chairman for details regarding restrictions.
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 |
999,999,999 |
999,999,999 |
999,999,999 |
| 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 bill provides for development of a “by state agency policy” allowing certain critical need jobs to be filled by retirees through unrestricted temporary employment. Approval of policies and individuals allowed to participate are reserved for the cabinet secretary with the approval of the governor.
The restrictions in the bill violate federal anti-discrimination requirements by providing the cabinet secretary the right to choose retirees who may be re-employed. Anti-discrimination requirements provide that all members must be given identical rights and such rights may not be at the discretion of the employer. PERS would need to be amended to allow all “normal retirees” to be able to elect continued employment WITHOUT THE APPROVAL OF EITHER THE AGENCY OR THE CABINET SECRETARY.
The changes necessary to meet federal anti-discrimination guidelines are expected to significantly increase both the Normal Cost and Unfunded Actuarial Accrued Liabilities of PERS. Such increases would be a violation of 2005 Pension Reform statutes.
Memorandum
This bill as drafted provides a discriminatory public pension policy that is in violation of anti-discrimination provisions under the Internal Revenue Code.
The bill with corrective provisions provides a uniform public pension policy of allowing unlimited double dipping of future retirees while continuing to work without control.
The corrective bill would violate public pension policy set when the Legislature adopted 2005 Pension Reform restrictions for future benefit improvements. To be allowable, 2005 Pension Reform restrictions would need to be amended by statute. Such amendment would be contrary to public pension policy set by the Legislature.
Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email Address: harry.w.mandel@wv.gov