Fiscal/Actuarial Note
Date Requested:February 28, 2013
Time Requested:01:09 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2013R2301 Introduced SB403
CBD Subject: SLIDING SCALE FOR THE RETIREMENT
Retirement Systems Impacted by Legislation:
Judges Retirement System
FUND(S)
JRS 2140
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 provides for a reduction in the member contribution rate effective July 1, 2013. The rate shall be reduced from 10.5% to 7% of member compensation.
    
    Effective July 1, 2014 and after, the CPRB Board shall set the member rate for the coming year based on the results of the actuarial valuation prepared by the State Actuary. The rate shall be no less than 7% and not more than 10.5%.
    
    The initial reduction to 7% for FY 2014 results in an increase of $324,000 in the employer Normal Cost contribution. The amount is based on the current funding policy of contributing the Normal Cost while the plan remains at full funding.
    
    Judges salary increases require legislation to be passed providing a salary increase. The annual cost relative to the member contribution reduction to 7% therefore is unchanged until legislation is passed. Based on the actuarial assumptions being met, the member contribution rate is expected to remain at 7%.
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 $324,000.00 3.50 %
Normal Cost of System N/A $324,000.00 3.50 %
Past Service Liabilities $0.00 $0.00 0.00 %
Fiscal Year Past Service
Amortization Period Ends
N/A N/A
Explanation of above estimates
    The change in Employer Normal Cost is the result of the reduction in Member paid Normal Cost increasing the Employer Normal Cost. There is no increase in retirement benefits under the bill which results in no increase in Actuarial Accrued Liabilities.
    
    Since the plan is currently fully funded, it will remain fully funded under the bill.
Analysis of Impact on Public Pension Policy
    The current Member Contribution rate of 10.5% is on the high side for plans whose members are covered under Social Security. The high contribution rate has been one of the contributing factors resulting in 11 judges eligible for JRS transfer electing to remain in PERS. Transfers into JRS after years of PERS participation is expected to result in issues regarding the significant transfer contributions that will be required.
    
    The reduced 7% member contribution rate is expected to encourage some of the eligible JRS judges to transfer from PERS to JRS.
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 provides for a reduction in the member contribution rate effective July 1, 2013. The rate shall be reduced from 10.5% to 7% of member compensation.
    
    Effective July 1, 2014 and after, the CPRB Board shall set the member rate for the coming year based on the results of the actuarial valuation prepared by the State Actuary. The rate shall be no less than 7% and not more than 10.5%.
    
    The initial reduction to 7% for FY 2014 results in an increase of $324,000 in the employer Normal Cost contribution. The amount is based on the current funding policy of contributing the Normal Cost while the plan remains at full funding.
    
    Judges salary increases require legislation to be passed providing a salary increase. The annual cost relative to the member contribution reduction to 7% therefore is unchanged until legislation is passed. Based on the actuarial assumptions being met, the member contribution rate is expected to remain at 7%.

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
2013
Increase/Decrease
(use"-")
2014
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 324000 324000
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other 0 324000 324000
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    The change in Employer Normal Cost is the result of the reduction in Member paid Normal Cost increasing the Employer Normal Cost. There is no increase in retirement benefits under the bill which results in no increase in Actuarial Accrued Liabilities.
    
    Since the plan is currently fully funded, it will remain fully funded under the bill.


Memorandum
    The current Member Contribution rate of 10.5% is on the high side for plans whose members are covered under Social Security. The high contribution rate has been one of the contributing factors resulting in 11 judges eligible for JRS transfer electing to remain in PERS. Transfers into JRS after years of PERS participation is expected to result in issues regarding the significant transfer contributions that will be required.
    
    The reduced 7% member contribution rate is expected to encourage some of the eligible JRS judges to transfer from PERS to JRS.
Person Submitting Fiscal Note
Harry W. Mandel, MAAA, MSPA, EA, Board Actuary
Email
harry.w.mandel@wv.gov