Fiscal/Actuarial Note
Date Requested:January 13, 2011
Time Requested:03:51 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2011R1424 Introduced HB2363
CBD Subject: PREVENTING REDUCTION OF DISABILITY BENEFITS
Retirement Systems Impacted by Legislation:
Public Employees Retirement System
FUND(S)
2510
Sources of Revenue
You must select Revenue Source(s)!
General Fund,Other Fund Local Govts
Does the proposed legislation create:
You must make a selection(s)!
Neither Program nor Fund

    This Bill as drafted violates the requirements of 2005 Pension Reform Legislation.
    
    The benefits provided to active members violates section 5-10-22h( c ) which prohibits benefit improvements to active members unless the PERS funded percentage equals or exceeds 85.0%. At the latest Actuarial Valuation for PERS as of July 1, 2010, the funded percentage of PERS was 74.6%.
    
    The retiree increase is estimated to be within the limitations of Section 5-10-22h(a) which limits increases to retired members to 1% of Actuarial Accrued Liabilities.
    
    The bill provides that the minimum disability benefit for PERS prior to age 65 be extended for life by eliminating the recalculation of the benefit after age 65. The increase impacts both active and retired PERS members.
    
    Prior actuarial results from a July 1, 2007 actuarial valuation study were projected to July 1, 2010 based on the latest actuarial valuation results on that date.
    
    The Normal Cost would increase by 0.04% of payroll, or $500,000 for FY2011. The Unfunded Actuarial Accrued Liabilities for active members would increase by $3,500,000. This increase in the UAAL must be amortized over 10 years at $492,000 per year for FY2012-FY2021.
    
    The UAAL for retirees increases by $36,000,000. This increase in UAAL must be amortized over 6 years at $7,397,000 per year for FY2012-FY2017.
    
    The FY2012 contribution increase of $8,389,000 represents a 0.58% of payroll contribution increase. The current employer contribution rate of 14.5% is insufficient to provide funding for the increased PERS funding requirement. The PERS employer contribution rate would need to be increased to 15.1% to maintain proper funding of the Plan.
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 $39,500,000.00 $8,389,000.00 0.58 %
Normal Cost of System N/A $500,000.00 0.04 %
Past Service Liabilities $39,500,000.00 $7,889,000.00 0.54 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2021 N/A
Explanation of above estimates
    The increases in normal cost and actuarial accrued liabilities reflect the increased minimum disability benefits for both current and expected future disability retirees under PERS. Amounts are based on a 2007 study run by Buck Consultants updated based on the July 1, 2010 actuarial valuation for PERS. An effective date for funding of July 1, 2011 has been assumed. It is assumed that no prior benefit payments will be effected and that the new minimum applies to benefit payments following the effective date only.
    
    Due to the difference in funding duration for active and retiree improvements, the contributions will be high for the next 6 years, reduce for the following 4 years and then level out at 0.04% of payroll for years 11 and after. The estimated contributions over the next 11 years are:
    
    FY2012 - $8,389,000
    FY2013 - $8,419,000
    FY2014 - $8,449,000
    FY2015 - $8,479,000
    FY2016 - $8,509,000
    FY2017 - $8,539,000
    FY2018 - $1,170,000
    FY2019 - $1,205,000
    FY2020 - $1,242,000
    FY2021 - $1,277,000
    FY2022 - $860,000
    
    It should be noted that these results are representative for the current year. A July 1, 2010 Study of exact costs by Buck Consultants was not completed since the Bill violated 2005 Pension Reform as applicable in the current year.
Analysis of Impact on Public Pension Policy
    The bill provides level disability retirement benefits for life by removing the recalculation in the minimum benefit at age 65. It is assumed that only benefit payments following the effective date of the bill will be increased. Those currently over age 65 on the effective date of the Bill and receiving disability benefits will not be recalculated or adjusted.
    
    The Bill violates 2005 Pension Reform restrictions for active members. The bill would required an amendment to 2005 Pension Reform statutes in order to be allowable. Such change would be contrary to current public pension policy set by the West Virginia Legislature when 2005 Pension Reform was passed.
Fiscal Note Summary

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

    This Bill as drafted violates the requirements of 2005 Pension Reform Legislation.
    
    The benefits provided to active members violates section 5-10-22h( c ) which prohibits benefit improvements to active members unless the PERS funded percentage equals or exceeds 85.0%. At the latest Actuarial Valuation for PERS as of July 1, 2010, the funded percentage of PERS was 74.6%.
    
    The retiree increase is estimated to be within the limitations of Section 5-10-22h(a) which limits increases to retired members to 1% of Actuarial Accrued Liabilities.
    
    The bill provides that the minimum disability benefit for PERS prior to age 65 be extended for life by eliminating the recalculation of the benefit after age 65. The increase impacts both active and retired PERS members.
    
    Prior actuarial results from a July 1, 2007 actuarial valuation study were projected to July 1, 2010 based on the latest actuarial valuation results on that date.
    
    The Normal Cost would increase by 0.04% of payroll, or $500,000 for FY2011. The Unfunded Actuarial Accrued Liabilities for active members would increase by $3,500,000. This increase in the UAAL must be amortized over 10 years at $492,000 per year for FY2012-FY2021.
    
    The UAAL for retirees increases by $36,000,000. This increase in UAAL must be amortized over 6 years at $7,397,000 per year for FY2012-FY2017.
    
    The FY2012 contribution increase of $8,389,000 represents a 0.58% of payroll contribution increase. The current employer contribution rate of 14.5% is insufficient to provide funding for the increased PERS funding requirement. The PERS employer contribution rate would need to be increased to 15.1% to maintain proper funding of the Plan.

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
2011
Increase/Decrease
(use"-")
2012
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 8389000 8419000
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    The increases in normal cost and actuarial accrued liabilities reflect the increased minimum disability benefits for both current and expected future disability retirees under PERS. Amounts are based on a 2007 study run by Buck Consultants updated based on the July 1, 2010 actuarial valuation for PERS. An effective date for funding of July 1, 2011 has been assumed. It is assumed that no prior benefit payments will be effected and that the new minimum applies to benefit payments following the effective date only.
    
    Due to the difference in funding duration for active and retiree improvements, the contributions will be high for the next 6 years, reduce for the following 4 years and then level out at 0.04% of payroll for years 11 and after. The estimated contributions over the next 11 years are:
    
    FY2012 - $8,389,000
    FY2013 - $8,419,000
    FY2014 - $8,449,000
    FY2015 - $8,479,000
    FY2016 - $8,509,000
    FY2017 - $8,539,000
    FY2018 - $1,170,000
    FY2019 - $1,205,000
    FY2020 - $1,242,000
    FY2021 - $1,277,000
    FY2022 - $860,000
    
    It should be noted that these results are representative for the current year. A July 1, 2010 Study of exact costs by Buck Consultants was not completed since the Bill violated 2005 Pension Reform as applicable in the current year.


Memorandum
    The bill provides level disability retirement benefits for life by removing the recalculation in the minimum benefit at age 65. It is assumed that only benefit payments following the effective date of the bill will be increased. Those currently over age 65 on the effective date of the Bill and receiving disability benefits will not be recalculated or adjusted.
    
    The Bill violates 2005 Pension Reform restrictions for active members. The bill would required an amendment to 2005 Pension Reform statutes in order to be allowable. Such change would be contrary to current public pension policy set by the West Virginia Legislature when 2005 Pension Reform was passed.
Person Submitting Fiscal Note
Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email
harry.w.mandel@wv.gov