Fiscal/Actuarial Note
Date Requested:January 12, 2012
Time Requested:06:08 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2012R1340 Introduced SB150
CBD Subject: PUBLIC EMPLOYER CONTRIBUTION RATE
Retirement Systems Impacted by Legislation:
Public Employees Retirement System
FUND(S)
PERS 2510
Sources of Revenue
You must select Revenue Source(s)!
General Fund,Other Fund Local Governments
Does the proposed legislation create:
You must make a selection(s)!
Neither Program nor Fund

    The Bill places an arbitrary limit of 14.5% to the Employer Contribution Rate under PERS.
    
    Under 2005 Pension Reform, the Actuarially Required Contribution (ARC) for PERS included two mandates for benefit improvement funding. Improvements for active members must be amortized over not more than 10 years and improvements for retirees and beneficiaries must be amortized over not more than 6 years. The CPRB Board was provided the authority to adopt an Employeer Contribution Rate sufficient to fund the ARC through a percentage of payroll contribution. The existing 2005 cap on the Employer Contribution Rate was removed as part of the 2005 Pension Reform Legislation.
    
    The Bill attempts to circumvent proper funding of the ARC provided under 2005 Pension Reform by placing an arbitrary limitation on the Employer Contribution Rate set by the Board. If this limitation prevents the Board from setting the proper rate, the Board Actuary will be required to disclose such failed funding in routine WV State bond rating reviews and bonding analysis by independent rating agencies. This is expected to negatively impact the State’s ratings.
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 does not increase benefits payable to members of PERS. As a result, there is no increase in either the Normal Cost nor the Actuarial Accrued Liabilities under PERS. Therefore the reported costs under PERS are all $0.
Analysis of Impact on Public Pension Policy
    The Bill as drafted defeats the careful planning and management provided for under the 2005 Pension Reform Legislation placed upon the CPRB Board. The Board will no longer be able to assure that the proper funding of PERS will occur through proper determination of and funding of the ARC as specified under the funding policy.
    
    If the cap contained in the bill results in the ARC not being properly funded, the impact of the Bill could seriously impact the WV State credit rating and bonding interest rates. Such impact would be significantly adverse to the State.
    
    The Board Actuary recommends that the Bill be referred to the State Budget Office for the preparation of a Fiscal Note on the non-pension impact of the Bill.
Fiscal Note Summary

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

    The Bill places an arbitrary limit of 14.5% to the Employer Contribution Rate under PERS.
    
    Under 2005 Pension Reform, the Actuarially Required Contribution (ARC) for PERS included two mandates for benefit improvement funding. Improvements for active members must be amortized over not more than 10 years and improvements for retirees and beneficiaries must be amortized over not more than 6 years. The CPRB Board was provided the authority to adopt an Employeer Contribution Rate sufficient to fund the ARC through a percentage of payroll contribution. The existing 2005 cap on the Employer Contribution Rate was removed as part of the 2005 Pension Reform Legislation.
    
    The Bill attempts to circumvent proper funding of the ARC provided under 2005 Pension Reform by placing an arbitrary limitation on the Employer Contribution Rate set by the Board. If this limitation prevents the Board from setting the proper rate, the Board Actuary will be required to disclose such failed funding in routine WV State bond rating reviews and bonding analysis by independent rating agencies. This is expected to negatively impact the State’s ratings.

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
2012
Increase/Decrease
(use"-")
2013
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 999999999
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    The Bill does not increase benefits payable to members of PERS. As a result, there is no increase in either the Normal Cost nor the Actuarial Accrued Liabilities under PERS. Therefore the reported costs under PERS are all $0.
    
    If the limit in the Bill is applied, one possible impact is a reduction in the State of WV credit rating. Such a change would increase the borrowing costs of state bonds. The expected costs cannot be determined because of the number of variables inherent in the situation. A cost entry of $999999999 has been entered to demonstrate a possible significant cost to the State that cannot be determined at this time.


Memorandum
    The Bill as drafted defeats the careful planning and management provided for under the 2005 Pension Reform Legislation placed upon the CPRB Board. The Board will no longer be able to assure that the proper funding of PERS will occur through proper determination of and funding of the ARC as specified under the funding policy.
    
    If the cap contained in the bill results in the ARC not being properly funded, the impact of the Bill could seriously impact the WV State credit rating and bonding interest rates. Such impact would be significantly adverse to the State.
    
    The Board Actuary recommends that the Bill be referred to the State Budget Office for the preparation of a Fiscal Note on the non-pension impact of the Bill.
Person Submitting Fiscal Note
Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email
harry.w.mandel@wv.gov