Actuarial Fiscal Note


Retirement Systems Impacted by Legislation:

State Police Plan B

FUND(S):

Plan B 2162

Sources of Revenue:

General Fund

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 reduces the regular unreduced retirement age to the earlier of age 50 with 25 years service or age 52 with 20 years service. The recalculation of duty disability benefits is also removed for both current disability retirees and future active disability retirees. Additional scholarship benefits are also provided.
    
    The increase in UAAL as of July 1, 2008 is $2,029,000 for active members and $96,000 for current retirees. Active UAAL is amortized over 10 years at $285,000 per year through FY2018. Retired UAAL is amortized over 6 years at $20,000 per year through FY2014.
    
    The Normal Cost rate for active members increases by 0.98% of pay, or $196,000 for FY2009, and continues each year into the future increasing the employer Normal Cost percentage to 11.84% of pay.
    
    The additional contribution schedule due to the bill is as follows:
    
    Fiscal Year Additional Contribution Percent of Pay
     2009 $501,000 2.51%
     2010 513,000 2.42
     2011 525,000 2.34
     2012 538,000 2.26
     2013 552,000 2.19
     2014 567,000 2.12
     2015 563,000 1.99
     2016 579,000 1.93
     2017 597,000 1.87
     2018 616,000 1.82
     2019 351,000 0.98
    
    The State Police contribution rate is set by the CPRB Board and is currently 12.0% of payroll which is sufficient to meet the funding targets for the Plan. The increased requirements under the Bill will require the contribution rate to be increased. Upon passage, the Board Actuary would recommend to the Board an increase in the State Police contribution rate of 2%, raising the contribution from 12% to 14% effective July 1, 2008. That contribution rate would be expected to remain in effect for 10 years, until the new UAAL is fully amortized. As an alternative to raising the employer contribution rate, if additional fee deposits are sufficient, the employer contribution rate would not be changed.



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 $2,125,000.00 $501,000.00 2.51 %
Normal Cost of System N/A $196,000.00 0.98 %
Past Service Liabilities $2,125,000.00 $305,000.00 1.53 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2018 N/A


Explanation of above Actuarial estimates:


    The cost were taken from a study of the July 1, 2007 actuarial valuation data by applying the increased benefits as of the Actuarial Valuation. Certain assumptions, especially retirement usage, were modified to be consistent with the earlier unreduced retirement provisions similar to the usage assumed under State Police Plan A. The improvement costs were projected to a July 1, 2008 effective date.
    
    Costs for scholarship benefits were not taken into account as they are highly unpredictable in respect to usage.

Analysis of Impact on Public Pension Policy:


    The changes in retirement age and disability benefits are consistent with law enforcement plans.
    
    Scholarship benefits should be carefully reviewed and a “reasonable maximum” should be considered by the legislature.
    
    The bill has certain technical defects that need to be corrected. The non-duty disability benefits need to be restored to the prior recalculation age. Early retirement eligibility needs to be restored to the previous 20 year eligibility requirement.



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    The bill reduces the regular unreduced retirement age to the earlier of age 50 with 25 years service or age 52 with 20 years service. The recalculation of duty disability benefits is also removed for both current disability retirees and future active disability retirees. Additional scholarship benefits are also provided.
    
    The increase in UAAL as of July 1, 2008 is $2,029,000 for active members and $96,000 for current retirees. Active UAAL is amortized over 10 years at $285,000 per year through FY2018. Retired UAAL is amortized over 6 years at $20,000 per year through FY2014.
    
    The Normal Cost rate for active members increases by 0.98% of pay, or $196,000 for FY2009, and continues each year into the future increasing the employer Normal Cost percentage to 11.84% of pay.
    
    The additional contribution schedule due to the bill is as follows:
    
    Fiscal Year Additional Contribution Percent of Pay
     2009 $501,000 2.51%
     2010 513,000 2.42
     2011 525,000 2.34
     2012 538,000 2.26
     2013 552,000 2.19
     2014 567,000 2.12
     2015 563,000 1.99
     2016 579,000 1.93
     2017 597,000 1.87
     2018 616,000 1.82
     2019 351,000 0.98
    
    The State Police contribution rate is set by the CPRB Board and is currently 12.0% of payroll which is sufficient to meet the funding targets for the Plan. The increased requirements under the Bill will require the contribution rate to be increased. Upon passage, the Board Actuary would recommend to the Board an increase in the State Police contribution rate of 2%, raising the contribution from 12% to 14% effective July 1, 2008. That contribution rate would be expected to remain in effect for 10 years, until the new UAAL is fully amortized. As an alternative to raising the employer contribution rate, if additional fee deposits are sufficient, the employer contribution rate would not be changed.



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 0 501,000 513,000
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 501,000 513,000
2. Estimated Total Revenues 0 0 0


Explanation of above Fiscal Note estimates (include possible long-range effect):


    The cost were taken from a study of the July 1, 2007 actuarial valuation data by applying the increased benefits as of the Actuarial Valuation. Certain assumptions, especially retirement usage, were modified to be consistent with the earlier unreduced retirement provisions similar to the usage assumed under State Police Plan A. The improvement costs were projected to a July 1, 2008 effective date.
    
    Costs for scholarship benefits were not taken into account as they are highly unpredictable in respect to usage.



Memorandum


    The changes in retirement age and disability benefits are consistent with law enforcement plans.
    
    Scholarship benefits should be carefully reviewed and a “reasonable maximum” should be considered by the legislature.
    
    The bill has certain technical defects that need to be corrected. The non-duty disability benefits need to be restored to the prior recalculation age. Early retirement eligibility needs to be restored to the previous 20 year eligibility requirement.



    Person submitting Fiscal Note: Harry W. Mandel, MAAA, MSPA, EA, Board Actuary
    Email Address: Harry.W.Mandel@wv.gov