Fiscal/Actuarial Note
Date Requested:March 25, 2013
Time Requested:01:50 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
2013R2897 Introduced HB3083
CBD Subject: REDEFINING THE TERM FINAL AVERAGE
Retirement Systems Impacted by Legislation:
Public Employees Retirement System
FUND(S)
PERS 2510
Sources of Revenue
You must select Revenue Source(s)!
Other Fund State and Local Govts
Does the proposed legislation create:
You must make a selection(s)!
Neither Program nor Fund

    The bill provides for a reduction in the PERS benefit formula for new members first hired July 1, 2013 and after. The final average pay in the formula is reduced from final 3 year average to final 10 year average in the last 15 years.
    
    The Normal Cost and Actuarial Accrued Liabilities for all current member is unchanged.
    
    The Normal Cost for those hired July 1, 2013 and after is expected to be 1.24% of payroll less than the Normal Cost for current members. The savings is dependent on the rate at which new hires enter PERS on and after July 1, 2013.
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 expected reduction 1.24% of annual pay in the Employer Normal Cost is based upon projections from the PERS July 1, 2012 Actuarial Valuation. New hires were projected to be consistent with current average participant demographics. The value of the reduction from Final 3 Year Average Pay to Final 10 Year Average Pay is based on a 4% average salary increase assumption.
Analysis of Impact on Public Pension Policy
    This bill reduces the recognition of inflation in the PERS benefit formula. The change provides a 12% reduction in expected benefits for new hires on and after July 1, 2013.
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 PERS benefit formula for new members first hired July 1, 2013 and after. The final average pay in the formula is reduced from final 3 year average to final 10 year average in the last 15 years.
    
    The Normal Cost and Actuarial Accrued Liabilities for all current member is unchanged.
    
    The Normal Cost for those hired July 1, 2013 and after is expected to be 1.24% of payroll less than the Normal Cost for current members. The savings is dependent on the rate at which new hires enter PERS on and after July 1, 2013.

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 -685000 -2100000
Personal Services
Current Expenses
Repairs and Alterations
Assets
Other 0 -685000 -2100000
2. Estimated Total Revenues
3. Explanation of above estimates (including long-range effect):
    The expected reduction 1.24% of annual pay in the Employer Normal Cost is based upon projections from the PERS July 1, 2012 Actuarial Valuation. New hires were projected to be consistent with current average participant demographics. The value of the reduction from Final 3 Year Average Pay to Final 10 Year Average Pay is based on a 4% average salary increase assumption.


Memorandum
    This bill reduces the recognition of inflation in the PERS benefit formula. The change provides a 12% reduction in expected benefits for new hires on and after July 1, 2013.
Person Submitting Fiscal Note
Harry W. Mandel, MAAA, MSPA, EA, Board Actuary
Email
harry.w.mandel@wv.gov