Actuarial Fiscal Note


Retirement Systems Impacted by Legislation:

Public Employees Retirement System

FUND(S):

2510

Sources of Revenue:

Other Fund State and Local Govts

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).


    The benefits provided under the Bill for PERS retirees have been checked against the limitations under 2005 Pension Reform. The requirement for PERS under Section 5-10-22h is exceeded and the benefits therefore are not allowable under 2005 Pension Reform for retired members.
    
    The bill provides for a one time permanent increase of $1,500 to retirees effective July 1, 2011.
    
    For PERS, there are an estimated 22,035 eligible retirees. The increase in UAAL is $274,613,000 and exceeds the 2005 Pension Reform limit of $53,258,000.
    
    The required six year amortization payment is $56,427,000 per year from FY2012 through FY2017. An increase in the employer contribution rate from 14.5% to 18.5% is required.
    
    The bill additionally provides for a $1,500 salary increase for PERS members. This increase is within the Salary Scale assumption for PERS and is not expected to generate “actuarial losses due to Salary Scale”. There is no unexpected impact on the Normal Cost nor the Actuarial Accrued Liabilities. The impact of the pay raise on Budgeting should be referred to the State Budget Office for analysis.



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 $274,613,000.00 $56,427,000.00 4.29 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $274,613,000.00 $56,427,000.00 4.29 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2017 N/A


Explanation of above Actuarial estimates:


    The actuarial estimates of the bill are based on the July 1, 2010 Actuarial Valuation data and calculated applying ProVal actuarial software.
    
    There is no increase in Normal Cost since active members are within the Salary Scale guidelines. The value of the $1,500 retiree benefit increase for life results in the reported increase in the Actuarial Accrued Liabilities.
    
    The increase in the AAL exceeds the allowable retiree increase under 2005 Pension Reform limitations.

Analysis of Impact on Public Pension Policy:


    The benefits provided under the bill for retirees exceeds the one year limitation for PERS under 2005 Pension Reform restrictions.



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The benefits provided under the Bill for PERS retirees have been checked against the limitations under 2005 Pension Reform. The requirement for PERS under Section 5-10-22h is exceeded and the benefits therefore are not allowable under 2005 Pension Reform for retired members.
    
    The bill provides for a one time permanent increase of $1,500 to retirees effective July 1, 2011.
    
    For PERS, there are an estimated 22,035 eligible retirees. The increase in UAAL is $274,613,000 and exceeds the 2005 Pension Reform limit of $53,258,000.
    
    The required six year amortization payment is $56,427,000 per year from FY2012 through FY2017. An increase in the employer contribution rate from 14.5% to 18.5% is required.
    
    The bill additionally provides for a $1,500 salary increase for PERS members. This increase is within the Salary Scale assumption for PERS and is not expected to generate “actuarial losses due to Salary Scale”. There is no unexpected impact on the Normal Cost nor the Actuarial Accrued Liabilities. The impact of the pay raise on Budgeting should be referred to the State Budget Office for analysis.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2011
Increase/Decrease
(use"-")
2012
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 56,427,000 56,427,000
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 actuarial estimates of the bill are based on the July 1, 2010 Actuarial Valuation data and calculated applying ProVal actuarial softwar.
    
    There is no increase in Normal Cost since active members are within the Salary Scale guidelines. The value of the $1,500 retiree benefit increase for life generates the reported increase in the Actuarial Accrued Liabilities.
    
    The increase in the AAL exceeds the allowable retiree increase under 2005 Pension Reform limitations.



Memorandum


    The benefits provided under the bill for retirees exceeds the one year limitation for PERS under 2005 Pension Reform restrictions.



    Person submitting Fiscal Note: Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
    Email Address: harry.w.mandel@wv.gov