Actuarial Fiscal Note

Retirement Systems Impacted by Legislation:

Municipal Police Officers and Firefighters Retirement System

FUND(S):

New

Sources of Revenue:

Other Fund Local Governments

Legislation creates:

A New Program,A New Fund

Actuarial Note Summary

Impact this measure will have on the liabilities and contributions associated with the retirement system(s).

    The bill creates the West Virginia Municipal Police Officers and Firefighters Retirement System (MPFRS) to be administered as a new statewide local governmental plan administered by the Consolidated Public Retirement Board (CPRB). The bill provides that electing employers with current individual municipal police and/or fire plans may enroll all future newly hired police and firefighters into MPFRS. Since only new hires may be enrolled, there is no UAAL at the inception of MPFRS. Member and employer contributions of 8.5% of payroll will be required to provide the Normal Cost percent of payroll requirement. This Normal Cost payment will replace the contribution that would have been required by the member and employer under their existing municipal police or fire plans.

    The bill provides that any municipality that elects to place its future police and firefighters in MPFRS shall close its existing plans to new membership. All current members in the existing police and fire plans remain members of those closed plans and continue to earn future retirement benefits from those plans. The closed plans shall continue to be administered by their local administrative boards. CONTINUED COSTS FOR THE CLOSED PLANS ARE NOT CONTAINED IN THIS FISCAL/ACTUARIAL NOTE PREPARED BY THE CPRB.

    The bill additionally provides local government administrative board oversight for all closed plans and ongoing local police and fire plans not electing to close their plans to new membership. This oversight shall be provided by the newly formed West Virginia Municipal Pensions Oversight Board (MPOB). The MPOB shall additionally assume duties with respect to the existing plans now being performed by the State Treasurer’s Office. ESTIMATED COSTS OF THE OVERSIGHT BOARD ARE NOT CONTAINED IN THIS FISCAL/ACTUARIAL NOTE PREPARED BY CPRB.

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
Impact On	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	8.50 %
Normal Cost of System	N/A	$0.00	8.50 %
Past Service Liabilities	$0.00	$0.00	0.00 %
Fiscal Year Past Service Amortization Period Ends	N/A		N/A

Explanation of above Actuarial estimates:

    This Actuarial Note only covers costs associated with the newly created MPFRS to be administered as a statewide cost sharing plan by the CPRB. MPFRS provides for future service only benefits which are similar to benefits provided under EMSRS. Since no past service benefits will be provided, the UAAL of MPFRS is $0. Future benefits are provided by Normal Cost payments of 8.5% of payroll by both the member and the employer. MPFRS will not pay any retirement, death or disability benefits prior to January 1, 2013. Each municipality shall be responsible to provide insurance for death and disability benefits during the period from January 1, 2010 through December 31, 2012. Such insurance is to be provided directly by the municipalities with direct premium payments.

    Normal benefit payments will be enabled January 1, 2013. The 8.5% contribution rate is recommended during the period prior to that date to enable MPFRS to accumulate enough assets to begin providing benefits on that date. If MPFRS fails to achieve 100 or more members by January 1, 2014, the bill provides that MPFRS will merge all its assets and liabilities into the EMSRS. Details of the merger are not provided.

    The costs for newly hired members under MPFRS was based on new hire demographics provided by the cities of Huntington, Charleston and Wheeling for their existing police and fire plans. The total actuarial Normal Cost rate was 13.5% of payroll. The recommended actuarial contribution rate of 17.0% (8.5% for both member and employer) provides a cushion for required initial funding of benefits for MPFRS. If supported by the experience, the contribution rates could be reduced to 6.75% for both the member and employer after July 1, 2013.

    It is noted that the contributions replace the contributions that would have been required for these members under the current municipal police and fire plans and are not in addition to those amounts.

Analysis of Impact on Public Pension Policy:

    The MPFRS provides for the establishment of a statewide cost sharing plan for future municipal police and firefighters. The cost sharing feature spreads experience risks over all participating members and minimizes the impact of adverse experience on any one employer. Membership portability is provided for those moving between participating municipalities..

    Benefits under continuing municipal police and fire plans continue to be the direct responsibility of each individual sponsoring municipality.

Fiscal Note Summary

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

    The bill as drafted does not impact the costs nor revenues of State Government.

    CPRB costs are funded by an annual deduction for each participating member from the MPFRS trust fund. With adequate participation under MPFRS, a new administrative employee will be required. Expense funding is provided through the percent of payroll contribution rate.

    The MPOB created under the bill will have its expenses paid from fire tax premiums currently allocated to the municipal police and fire plans through administration by the State Treasurer’s Office (STO). The STO will transfer all administrative responsibilities and fire tax premium amounts to the MPOB. The MPOB’s expenses will increase the costs to local governments only to the extent that MPOB expenses exceed those of the cost reduction to the STO. The CPRB is not responsible for the activities of the MPOB and therefore cannot provide a cost estimate for the operations of the MPOB.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2009 Increase/Decrease (use"-")	2010 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	0	0
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	0	0

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

    The bill does not provide for any additional fire tax premiums, nor the reallocation of fire tax premium amounts currently being provided. On this basis, there is no increase in costs to State Government.

    MPFRS expenses for administration by the CPRB are deducted from the Plan’s trust fund on a per member basis annually. Actuarial contribution rates to fund MPFRS benefits include the amounts necessary to cover the expense charges from CPRB and therefore are a local government expense.

Memorandum

The impact on local governments for the MPOB is dependent on the cost incurred by the Board for its operations. Significant costs for mandated actuarial services are required, but replace costs for actuarial services now covered under services provided by the STO.

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