Fiscal/Actuarial Note
Date Requested:February 08, 2011
Time Requested:12:06 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2011R2364 Introduced HB3053
CBD Subject: COLA FOR RETIRED TEACHERS
Retirement Systems Impacted by Legislation:
Public Employees Retirement System / Teachers Retirement System
FUND(S)
PERS 2510 / TRS 2601
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

    The benefits provided under the Bill for certain PERS and TRS retirees have been checked against the limitations under 2005 Pension Reform. The requirement for PERS under Section 5-10-22h and TRS under Section 18-7A-28e are both met.
    
    The bill provides for a one time permanent increase of the one year CPI increase reported by the US DOL to certain retirees effective July 1, 2011. Retirees must be age 60 or older and have been retired for 5 or more years to be eligible. This Actuarial Note was prepared based on the calendar year 2010 CPI increase. Additionally, beneficiaries of deceased members who would have met the eligibility requirement are assumed eligible for the increase. The 2010 calendar year CPI-U before seasonal adjustments resulted in an increase of 1.5% under the bill.
    
    For PERS, there are 16554 eligible retirees. The increase in Actuarial Accrued Liabilities is $22,747,000 requiring a six year amortization payment of $4,674,000 per year through FY2017. An increase in the employer contribution rate from 14.5% to 15.0% is required.
    
    For TRS, there are 23,217 eligible retirees. The increase in Actuarial Accrued Liabilities is $46,780,000 requiring a six year amortization payment of $9,612,000 through FY2017.
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 $69,527,000.00 $14,286,000.00 0.50 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $69,527,000.00 $14,286,000.00 0.50 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2017 N/A
Explanation of above estimates
    The actuarial analysis of the bill is based on the July 1, 2010 actuarial valuation data projected to July 1, 2011 and run on ProVal actuarial valuation software.
    
    There is no increase in Normal Cost since active members are not included in the increased benefits. The value of the CPI based 2010 calendar year 1.5% benefit increase for life is the basis for the increase of $69,527,000 of Actuarial Accrued Liabilities. The AAL must be amortized over 6 years from July 1, 2011 through June 30, 2017 at $14,286,000 annually.
    
    The amounts calculated are based on the published 2010 Calendar year annual CPI rate of 1.5% and the inclusion of beneficiaries of deceased members who would have been eligible under the age and years retired requirement.
Analysis of Impact on Public Pension Policy
    The increase has been priced as effective July 1, 2011 and payable under the annuity option as elected at the retirement of each member.
    
    There are two amendment required to clarify the provisions of the bill to correspond to the actuarial interpretation used in preparing this Actuarial Note.
    
    1. The published COL rate should be defined as “Consumer Price Index for All Urban Consumers (CPI-U) as reported by the US Bureau of Labor Statistics before seasonal adjustments for calendar year 2010".
    
    2. Eligible annuitants include all members age 60 or older retired for 5 or more years and beneficiaries of deceased members who would have met those requirements.
Fiscal Note Summary

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

    The benefits provided under the Bill for certain PERS and TRS retirees have been checked against the limitations under 2005 Pension Reform. The requirement for PERS under Section 5-10-22h and TRS under Section 18-7A-28e are both met.
    
    The bill provides for a one time permanent increase of the one year CPI increase reported by the US DOL to certain retirees effective July 1, 2011. Retirees must be age 60 or older and have been retired for 5 or more years to be eligible. This Actuarial Note was prepared based on the calendar year 2010 CPI increase. Additionally, beneficiaries of deceased members who would have met the eligibility requirement are assumed eligible for the increase. The 2010 calendar year CPI-U before seasonal adjustments resulted in an increase of 1.5% under the bill.
    
    For PERS, there are 16554 eligible retirees. The increase in Actuarial Accrued Liabilities is $22,747,000 requiring a six year amortization payment of $4,674,000 per year through FY2017. An increase in the employer contribution rate from 14.5% to 15.0% is required.
    
    For TRS, there are 23,217 eligible retirees. The increase in Actuarial Accrued Liabilities is $46,780,000 requiring a six year amortization payment of $9,612,000 through FY2017.

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 14286000 14286000
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    The actuarial analysis of the bill is based on the July 1, 2010 actuarial valuation data projected to July 1, 2011 and run on ProVal actuarial valuation software.
    
    There is no increase in Normal Cost since active members are not included in the increased benefits. The value of the CPI based 2010 calendar year 1.5% benefit increase for life is the basis for the increase of $69,527,000 of Actuarial Accrued Liabilities. The AAL must be amortized over 6 years from July 1, 2011 through June 30, 2017 at $14,286,000 annually.
    
    The amounts calculated are based on the published 2010 Calendar year annual CPI rate of 1.5% and the inclusion of beneficiaries of deceased members who would have been eligible under the age and years retired requirement.


Memorandum
    The increase has been priced as effective July 1, 2011 and payable under the annuity option as elected at the retirement of each member.
    
    There are two amendment required to clarify the provisions of the bill to correspond to the actuarial interpretation used in preparing this Actuarial Note.
    
    1. The published COL rate should be defined as “Consumer Price Index for All Urban Consumers (CPI-U) as reported by the US Bureau of Labor Statistics before seasonal adjustments for calendar year 2010".
    
    2. Eligible annuitants include all members age 60 or older retired for 5 or more years and beneficiaries of deceased members who would have met those requirements.
Person Submitting Fiscal Note
Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email
harry.w.mandel@wv.gov