Fiscal/Actuarial Note
Date Requested:January 28, 2011
Time Requested:01:10 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2011R2317 Introduced HB2921
CBD Subject: FINAL AVERAGE SALARY
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 State and Local Govts
Does the proposed legislation create:
You must make a selection(s)!
Neither Program nor Fund

    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 5-10-22h prohibits benefit increases to active members when the PERS funded percentage is less than 85%. As of the July 1, 2010 Actuarial Valuation for PERS as applicable to the 2011 legislative session, the funded percentage is 74.6%.
    
     See the Pension Committee chairman for details.
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 $0.00 $0.00 0.00 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $0.00 $0.00 0.00 %
Fiscal Year Past Service
Amortization Period Ends
N/A N/A
Explanation of above estimates
    The bill modifies the calculation of final average pay (three year consecutive average pay in the last 10 years of employment) by extending the salary history in which the average is calculated to 15 years. The change only impacts terminating or retiring members who have had decreases in their annual salaries where their highest consecutive three year pay would include all or part of the additional years 11 through 15.
    
    The actuarial assumptions for salary scale assume that members will have continuing salary increases through retirement. This assumption would not change due to the change included in the bill. As a result, neither the Normal Cost nor the Actuarial Accrued Liability would increase as a result of the bill. The “actuarial cost” of the bill is therefore reported as having no material actuarial impact.
    
    Any experience cost due the change in the bill cannot be determined until a member impacted by the change actually retirees. Relative to the number of active members who will not be impacted, those actually impacted are not considered to have a material cost impact on PERS.
Analysis of Impact on Public Pension Policy
    By extending the averaging period from 10 to 15 years, the bill is intended to maintain an historical high final average pay over an additional 5 years, preventing an unintended decrease in retirement benefits due to the reduction in final average pay under the 10 year limitation.
    
    The increased benefit possibility does result in a 2005 Pension Reform violation for PERS due to its funded percentage being under 85%. Due to the immaterial cost expectations and the fact that no change in Normal Cost nor Actuarial Accrued Liabilities is expected, the Bill should be amended to specifically exempt the change from the 2005 Pension Reform provisions due to the immateriality.
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 WV Statutes under 2005 Pension Reform Legislation. Section 5-10-22h prohibits benefit increases to active members when the PERS funded percentage is less than 85%. As of the July 1, 2010 Actuarial Valuation for PERS as applicable to the 2011 legislative session, the funded percentage is 74.6%.
    
     See the Pension Committee chairman for details.

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 0 0
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    The bill modifies the calculation of final average pay (three year consecutive average pay in the last 10 years of employment) by extending the salary history in which the average is calculated to 15 years. The change only impacts terminating or retiring members who have had decreases in their annual salaries where their highest consecutive three year pay would include all or part of the additional years 11 through 15.
    
    The actuarial assumptions for salary scale assume that members will have continuing salary increases through retirement. This assumption would not change due to the change included in the bill. As a result, neither the Normal Cost nor the Actuarial Accrued Liability would increase as a result of the bill. The “actuarial cost” of the bill is therefore reported as having no material actuarial impact.
    
    Any experience cost due the change in the bill cannot be determined until a member impacted by the change actually retirees. Relative to the number of active members who will not be impacted, those actually impacted are not considered to have a material cost impact on PERS.


Memorandum
    By extending the averaging period from 10 to 15 years, the bill is intended to maintain an historical high final average pay over an additional 5 years, preventing an unintended decrease in retirement benefits due to the reduction in final average pay under the 10 year limitation.
    
    The increased benefit possibility does result in a 2005 Pension Reform violation for PERS due to its funded percentage being under 85%. Due to the immaterial cost expectations and the fact that no change in Normal Cost nor Actuarial Accrued Liabilities is expected, the Bill should be amended to specifically exempt the change from the 2005 Pension Reform provisions due to the immateriality.
Person Submitting Fiscal Note
Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email
harry.w.mandel@wv.gov