Fiscal/Actuarial Note
Date Requested:January 24, 2012
Time Requested:12:00 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2012R1597 Introduced SB393
CBD Subject: TEACHERS RETIREMENT EXTENSION FOR SERVICE CREDIT
Retirement Systems Impacted by Legislation:
Teachers Retirement System
FUND(S)
TRS 2601
Sources of Revenue
You must select Revenue Source(s)!
General Fund
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 18-7A-28e ( c ) prohibits new benefits being granted to any active members of TRS. See the Pension Committee chairman for details.
    
    The bill opens a new window for a select group of active members to purchase “make up contribution service” from TDC under TRS. Purchasing members must pay a make up contribution of 1.5% of pay plus interest at 7.5%. It is estimated that for the average purchasing member, the actuarial accrued liability under TRS will exceed the make up contribution amount by $50,000. It is estimated that approximately 100 members will take advantage of the new window resulting in an increase in the TRS Unfunded Actuarial Accrued Liabilities of $5,000,000. Based on 10 year amortization, the expected impact on the TRS Actuarially Required Contribution is $703,000 per year.
    
    It is noted that final actuarial costs will be determined based on final usage numbers which could be greater or lower than this estimate.
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 $5,000,000.00 $703,000.00 0.01 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $5,000,000.00 $703,000.00 0.01 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2022 N/A
Explanation of above estimates
    Cost estimates are based on the analysis performed at the original TDC to TRS transfer window.
    
    The estimate of 100 electing members is deemed reasonable based upon the limited eligibility in the Bill. If the member eligibility requirements are expanded to allow additional eligibility, then a significant increase in estimated electing members will greatly increase the costs of the bill.
Analysis of Impact on Public Pension Policy
    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) prohibits new benefits be granted to any active members of TRS.
    
    To implement the bill, it must be amended to exempt this specific increase from the 2005 Pension Reform limitations. The fiscal and political impact of such an exemption should be considered by the legislature.
    
    The new election window subjects the benefit process to adverse selection. This issue was specifically considered in the initial legislation which is why a cut off date to make such elections was implemented.
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 18-7A-28e ( c ) prohibits new benefits being granted to any active members of TRS. See the Pension Committee chairman for details.
    
    The bill opens a new window for a select group of active members to purchase “make up contribution service” from TDC under TRS. Purchasing members must pay a make up contribution of 1.5% of pay plus interest at 7.5%. It is estimated that for the average purchasing member, the actuarial accrued liability under TRS will exceed the make up contribution amount by $50,000. It is estimated that approximately 100 members will take advantage of the new window resulting in an increase in the TRS Unfunded Actuarial Accrued Liabilities of $5,000,000. Based on 10 year amortization, the expected impact on the TRS Actuarially Required Contribution is $703,000 per year.
    
    It is noted that final actuarial costs will be determined based on final usage numbers which could be greater or lower than this estimate.

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 703000 703000
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other 0 703000 703000
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    Cost estimates are based on the analysis performed at the original TDC to TRS transfer window.
    
    The estimate of 100 electing members is deemed reasonable based upon the limited eligibility in the Bill. If the member eligibility requirements are expanded to allow additional eligibility, then a significant increase in estimated electing members will greatly increase the costs of the bill.


Memorandum
    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( c ) prohibits new benefits be granted to any active members of TRS.
    
    To implement the bill, it must be amended to exempt this specific increase from the 2005 Pension Reform limitations. The fiscal and political impact of such an exemption should be considered by the legislature.
    
    The new election window subjects the benefit process to adverse selection. This issue was specifically considered in the initial legislation which is why a cut off date to make such elections was implemented.
Person Submitting Fiscal Note
Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email
harry.w.mandel@wv.gov