Actuarial Fiscal Note


Retirement Systems Impacted by Legislation:

Teachers Retirement System

FUND(S):

2601

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).


    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( a ) prohibits increases to retired members in excess of 1% of the TRS Actuarial Accrued Liabilities as determined in the last actuarial valuation for TRS. The estimated increase in Actuarial Accrued Liabilities of $130,000,000 under the bill exceeds the limitation as of July 1, 2010 of $89,043,000.
    
    See the Pension Committee chairman for details.



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 $130,000,000.00 $27,000,000.00 1.70 %
Normal Cost of System N/A $0.00 0.00 %
Past Service Liabilities $130,000,000.00 $270,000,000.00 1.70 %
Fiscal Year Past Service
Amortization Period Ends
N/A FY2017 N/A


Explanation of above Actuarial estimates:


    The bill provides a 3% retirement benefit increase effective July 1, 2010. To be eligible for the increase, a retiree must be at least age 70 and have been retired at least 5 years. Beneficiaries of deceased retirees are eligible if the deceased retiree would have met the age and service requirement.
    
    Since the benefit applies to retired members and their beneficiaries only, there is no impact on the Normal Cost for the Plan. The retired Actuarial Accrued Liabilities is expected to increase by approximately $130,000,000. This will increase the TRS required contribution by $27,000,000 for FY2012 through FY2017.
    
    The benefit improvement exceeds the 2005 Pension Reform limitation on retiree increases and is not currently allowable under those limitations. Amounts have been provided for information purposes only.

Analysis of Impact on Public Pension Policy:


    This retiree increase exceeds the 2005 Pension Reform limitation based on the July 1, 2010 Actuarial Valuation for TRS of $89,043,000.
    
    The bill provides the increase for TRS members only. It is noted that if PERS were included, the 2005 Pension Reform limitation for PERS of $53,258,000 would also be exceeded.
    
    The bill as drafted is contrary to current Pension Reform guidelines.



Fiscal Note Summary


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


    This Bill as drafted violates WV Statutes under 2005 Pension Reform Legislation. Section 18-7A-28e ( a ) prohibits increases to retired members in excess of 1% of the TRS Actuarial Accrued Liabilities as determined in the last actuarial valuation for TRS. The estimated increase in Actuarial Accrued Liabilities of $130,000,000 under the bill exceeds the limitation as of July 1, 2010 of $89,043,000.
    
    See the Pension Committee chairman for details.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2011
Increase/Decrease
(use"-")
2012
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 27,000,000 27,000,000
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 provides a 3% retirement benefit increase effective July 1, 2010. To be eligible for the increase, a retiree must be at least age 70 and have been retired at least 5 years. Beneficiaries of deceased retirees are eligible if the deceased retiree would have met the age and service requirement.
    
    Since the benefit applies to retired members and their beneficiaries only, there is no impact on the Normal Cost for the Plan. The retired Actuarial Accrued Liabilities is expected to increase by approximately $130,000,000. This will increase the TRS required contribution by $27,000,000 for FY2012 through FY2017.
    
    The benefit improvement exceeds the 2005 Pension Reform limitation on retiree increases and is not currently allowable under those limitations. Amounts have been provided for information purposes only.



Memorandum


    This retiree increase exceeds the 2005 Pension Reform limitation based on the July 1, 2010 Actuarial Valuation for TRS of $89,043,000.
    
    The bill provides the increase for TRS members only. It is noted that if PERS were included, the 2005 Pension Reform limitation for PERS of $53,258,000 would also be exceeded.
    
    The bill as drafted is contrary to current Pension Reform guidelines.



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