Actuarial Fiscal Note
Retirement Systems Impacted by Legislation:
Public Employees Retirement System
FUND(S):
PERS 2510
Sources of Revenue:
General Fund,Other Fund local governments
Legislation creates:
Neither Program nor Fund
Actuarial Note Summary
Impact this measure will have on the liabilities and contributions associated with the retirement system(s).
The bill provides that up to 5 years of “free” military service will be granted to persons who are eligible at any time for Public Employees Retirement benefits for any military service. Specifically, the bill removes all current limitations for “armed conflict” service only. Based on the eligibility wording, retirees under PERS will be able to claim any military service credits not previously granted at retirement and have their benefits increased effective with the enactment date of the bill.
For active PERS members, the Normal Cost will increase by 0.94% of payroll, or $11,234,000 for FY2008. The UAAL will increase by $225,178,000. The UAAL will require ten year amortization at $31,640,000 annually for FY2008 through FY2017.
For retired PERS members and assuming 100% notification and claiming of additional service, the UAAL will increase by $154,435,000. The UAAL will require six year amortization payments of $31,733,000 annually for FY2008 through FY2013.
The total increase in the UAAL of $379,613,000 would decrease the funded percentage of PERS from 97.0% down to 89.3%.
The total contribution requirement for FY2008 through FY2013 would require a contribution of 6.26% of payroll. It would be recommended that the current 10.5% employer contribution rate be increased by 3% to 13.5% through FY2013 after which it could be reduced depending on the status of the PERS at that time. The FY2014 through FY2017 requirement would be reduced to a contribution of about 3.5% of payroll, and might allow the contribution to again be reduced from 13.5% to 10.5% of payroll, depending on PERS funding at that time.
Fiscal Detail of Actuarial Impact
Impact on current benefit costs, prior service benefit costs and ongoing contribution requirements following full implementation.
| 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 |
$379,613,000.00 |
$74,607,000.00 |
6.00 % |
| Normal Cost of System |
N/A |
$11,234,000.00 |
0.00 % |
| Past Service Liabilities |
$379,613,000.00 |
$63,373,000.00 |
5.00 % |
Fiscal Year Past Service
Amortization Period Ends |
N/A |
FY2013/FY2017 |
N/A |
Explanation of above Actuarial estimates:
All liabilities and funding requirements are based on the July 1, 2007 actuarial valuation for PERS.
Based on an analysis of prior retirees, the ratio of total military service to current conflict service was estimated for male and female PERS members and retirees. The liabilities reflect the additional expected credits over the current Board practices regarding armed conflict service credits which are reflected in the 2007 actuarial valuation for PERS.
(It is noted by the Actuary that the definition of armed conflict service to be granted under current statues is currently under review by the Board. A decision to increase the armed conflicts to be recognized under current statutes would increase existing liabilities in future actuarial valuations. Such increase would offset the additional liabilities as calculated for this bill.)
Analysis of Impact on Public Pension Policy:
The bill would provide free military credits without the requirement that such military service either included or was during an armed conflict as currently defined. This bill would greatly extend the funding of veterans benefits under PERS to participating state and local governmental public employees and their employers. If veterans benefits are to be funded by all state taxpayers, a special general revenue funding source would need to be provided to PERS in addition to current member and employer contributions, avoiding the need to increase the current contribution percentages.
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The bill provides that up to 5 years of “free” military service will be granted to persons who are eligible at any time for Public Employees Retirement benefits for any military service. Specifically, the bill removes all current limitations for “armed conflict” service only. Based on the eligibility wording, retirees under PERS will be able to claim any military service credits not previously granted at retirement and have their benefits increased effective with the enactment date of the bill.
For active PERS members, the Normal Cost will increase by 0.94% of payroll, or $11,234,000 for FY2008. The UAAL will increase by $225,178,000. The UAAL will require ten year amortization at $31,640,000 annually for FY2008 through FY2017.
For retired PERS members and assuming 100% notification and claiming of additional service, the UAAL will increase by $154,435,000. The UAAL will require six year amortization payments of $31,733,000 annually for FY2008 through FY2013.
The total increase in the UAAL of $379,613,000 would decrease the funded percentage of PERS from 97.0% down to 89.3%.
The total contribution requirement for FY2008 through FY2013 would require a contribution of 6.26% of payroll. It would be recommended that the current 10.5% employer contribution rate be increased by 3% to 13.5% through FY2013 after which it could be reduced depending on the status of the PERS at that time. The FY2014 through FY2017 requirement would be reduced to a contribution of about 3.5% of payroll, and might allow the contribution to again be reduced from 13.5% to 10.5% of payroll, depending on PERS funding at that time.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2008
Increase/Decrease
(use"-") |
2009
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
74,607,000 |
75,056,000 |
75,056,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
74,607,000 |
75,056,000 |
75,056,000 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above Fiscal Note estimates (include possible long-range effect):
All liabilities and funding requirements are based on the July 1, 2007 actuarial valuation for PERS.
Based on an analysis of prior retirees, the ratio of total military service to current conflict service was estimated for male and female PERS members and retirees. The liabilities reflect the additional expected credits over the current Board practices regarding armed conflict service credits which are reflected in the 2007 actuarial valuation for PERS.
(It is noted by the Actuary that the definition of armed conflict service to be granted under current statues is currently under review by the Board. A decision to increase the armed conflicts to be recognized under current statutes would increase existing liabilities in future actuarial valuations. Such increase would offset the additional liabilities as calculated for this bill.)
Memorandum
The bill would provide free military credits without the requirement that such military service either included or was during an armed conflict as currently defined. This bill would greatly extend the funding of veterans benefits under PERS to participating state and local governmental public employees and their employers. If veterans benefits are to be funded by all state taxpayers, a special general revenue funding source would need to be provided to PERS in addition to current member and employer contributions, avoiding the need to increase the current contribution percentages.
Person submitting Fiscal Note: Harry W. Mandel, MAAA, MSPA, EA, Board Actuary
Email Address: Harry.W.Mandel@wv.gov