Fiscal/Actuarial Note
Date Requested:January 25, 2012
Time Requested:03:37 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2012R1367 Introduced SB422
CBD Subject: COSTS FOR FUTURE MEMBERS
Retirement Systems Impacted by Legislation:
PERS / TRS / State Police Plan B
FUND(S)
PERS 2510; TRS 2601; Plan B 2162
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

    The bill reduces certain benefits for new members hired on or after July 1, 2012 in PERS, TRS and State Police Plan B.
    
    Since all benefit reductions apply only to newly hired members, there is no impact on the existing Actuarial Accrued Liabilities nor the Normal Cost rate for existing members in the Plans.
    
    All cost reductions occur in the form of reduced employer Normal Cost percentage of payroll amounts. Normal Cost amounts are shown in FY2012 payroll basis for comparitive purposes. Both the first year impact and ultimate impact are presented.
    
    For PERS, the employer Normal Cost is reduced by 2.48% of payroll. The first year reduction is estimated at $940,000. The ultimate cost savings is estimated at $32,890,000.
    
    For TRS, the employer Normal Cost is reduced by 0.73% of payroll. The first year reduction is estimated at $250,000. The ultimate cost savings is estimated at $10,910,000.
    
    For Plan B, the employer Normal Cost is reduced by 0.49% of payroll. The first year reduction is estimated at $4,000. The ultimate cost savings is estimated at $117,000.
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 ($43,917,000.00) -2.50 %
Normal Cost of System N/A ($43,917,000.00) -2.50 %
Past Service Liabilities $0.00 $0.00 0.00 %
Fiscal Year Past Service
Amortization Period Ends
N/A N/A
Explanation of above estimates
    Cost savings estimates were developed from July 1, 2010 and July 1, 2011 Actuarial Valuation amounts. Expected new hires were based on the demography of current newly hired members in their first 5 years of employment. Long term membership was assumed to replace existing members over time.
    
    All contribution reductions are based upon applying Normal Cost savings to FY2012 annual payroll amounts. Future savings will increase if payroll increases.
Analysis of Impact on Public Pension Policy
    The reduced benefits will make recruiting to public service less desirable compared to current benefits. For PERS, members will be funding 6% of payroll while state employers will be contributing a reduced 3.08% of payroll. This effectively makes TRS 67% member funded and 33% employer funded.
    
    The impact on TRS and State Police Plan B is less dramatic in that fewer reductions are applied.
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 reduces certain benefits for new members hired on or after July 1, 2012 in PERS, TRS and State Police Plan B.
    
    Since all benefit reductions apply only to newly hired members, there is no impact on the existing Actuarial Accrued Liabilities nor the Normal Cost rate for existing members in the Plans.
    
    All cost reductions occur in the form of reduced employer Normal Cost percentage of payroll amounts. Normal Cost amounts are shown in FY2012 payroll basis for comparitive purposes. Both the first year impact and ultimate impact are presented.
    
    For PERS, the employer Normal Cost is reduced by 2.48% of payroll. The first year reduction is estimated at $940,000. The ultimate cost savings is estimated at $32,890,000.
    
    For TRS, the employer Normal Cost is reduced by 0.73% of payroll. The first year reduction is estimated at $250,000. The ultimate cost savings is estimated at $10,910,000.
    
    For Plan B, the employer Normal Cost is reduced by 0.49% of payroll. The first year reduction is estimated at $4,000. The ultimate cost savings is estimated at $117,000.

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 -1194000 -43917000
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    Cost savings estimates were developed from July 1, 2010 and July 1, 2011 Actuarial Valuation amounts. Expected new hires were based on the demography of current newly hired members in their first 5 years of employment. Long term membership was assumed to replace existing members over time.
    
    All contribution reductions are based upon applying Normal Cost savings to FY2012 annual payroll amounts. Future savings will increase if payroll increases.


Memorandum
    The reduced benefits will make recruiting to public service less desirable compared to current benefits. For PERS, members will be funding 6% of payroll while state employers will be contributing a reduced 3.08% of payroll. This effectively makes TRS 67% member funded and 33% employer funded.
    
    The impact on TRS and State Police Plan B is less dramatic in that fewer reductions are applied.
Person Submitting Fiscal Note
Harry W. Mandel, Board Actuary, MAAA, MSPA, EA
Email
harry.w.mandel@wv.gov