Actuarial Fiscal Note

Date Requested:February 12, 2025
Time Requested:06:23 PM

1940	Introduced	SB35
Agency:	Consolidated Public Retirement Board
CBD Number:	Version:	Bill Number:	Resolution Number:
CBD Subject:	Retirement

Retirement Systems Impacted by Legislation:

MPFRS 2390

FUND(S):

Special Fund

Sources of Revenue:

Creates New Expense

Legislation creates:

MPFRS

Actuarial Note Summary

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

    The purpose of SB 35 is to allow campus police officers to participate in the Municipal Police Officers and Firefighters Retirement System (MPFRS). Should a current campus police officer choose to participate in MPFRS, no service credit or dollars accrued may be moved into MPFRS. Effective January 1, 2026, all newly hired campus police officers shall participate in MPFRS.

    Currently, as written the Bill refers to campus police officers joining the Deputy Sheriffs Retirement System; however, it is our understanding that the Bill is intended to allow campus police officers to join MPFRS. Therefore, we provide a cost analysis of the Bill based on campus police officers joining MPFRS.

    The Bill would permit potentially 140 campus police officers to join MPFRS as a new hire with no past service transferring to MPFRS. We received data from 12 colleges/universities in West Virginia that employ campus police officers. These campus police officers’ range in age from 21 to 77. We were given data on 116 of the campus police officers that may transfer to MPFRS. Of the 116 campus police officers in the data, 32 records were missing pay or their pay was incomplete. For these records we used the average pay for campus police officers at the given college/university or average pay from the overall group of campus police officers if no data was supplied for the given college/university.

    In addition, we added 24 more records to account for campus police officers that may fill vacant positions in the future . To determine pay for this group, we used the average pay for campus police officers at the given college/university or average pay from the overall group of campus police officers if no data was supplied for the given college/university.

    With no past service transferring to MPFRS, these officers would begin in MPFRS with zero service and therefore, start with an Actuarial Accrued Liability of zero. Measured as of July 1, 2024, the Unfunded Actuarial Accrued Liability for MPFRS would not increase if 140 campus police officers joined MPFRS as new entrants.

    The MPFRS normal cost at entry age depends on the age of the officer when they are hired, with older officers having a higher normal cost. Measured as of July 1, 2024, SB 35 would increase the MPFRS employer normal cost by about $1.6 million per year, and as a percentage of payroll, would increase the employer normal cost by 2.11% of MPFRS payroll given the payroll for new members. To see this result, from the July 1, 2024, funding valuation for MPFRS, the MPFRS employer normal cost is 3.93% of MPFRS payroll and as of July 1, 2024, under the assumption that all 140 campus police officers transfer to MPFRS, the MPFRS employer normal cost would be 6.04% of MPFRS payroll.

    The amortization of existing plan provision changes does not change as a level dollar amount, however, as a percent of the MPFRS payroll, decreases by 0.09% due to the increase in payroll from the addition of the 140 campus police officers.

    Therefore, measured as of July 1, 2024, the total MPFRS annual recommended employer contribution would increase by approximately $1.6 million or 2.02% of MPFRS payroll if 140 campus police officers joined MPFRS. To see this result, from the July 1, 2024, funding valuation for MPFRS, the MPFRS total annual recommended contribution is 4.39% of MPFRS payroll and as of July 1, 2024, assuming all 140 campus police officers transfer to MPFRS, the MPFRS total annual recommended contribution would be 6.41% of MPFRS payroll, due to SB 35.

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	$1,594,000.00	2.02 %
Normal Cost of System	N/A	$1,594,000.00	2.11 %
Past Service Liabilities	$0.00	$0.00	-0.09 %
Fiscal Year Past Service Amortization Period Ends	N/A	2034	N/A

Explanation of above Actuarial estimates:

    With no past service transferring to MPFRS, these officers would begin in MPFRS with zero service and therefore, start with an Actuarial Accrued Liability of zero. Measured as of July 1, 2024, the Unfunded Actuarial Accrued Liability for MPFRS would not increase if 140 campus police officers joined MPFRS as new entrants.

    The MPFRS normal cost at entry age depends on the age of the officer when they are hired, with older officers having a higher normal cost. Measured as of July 1, 2024, SB 35 would increase the MPFRS employer normal cost by about $1.6 million per year, and as a percentage of payroll, would increase the employer normal cost by 2.11% of MPFRS payroll given the payroll for new members. To see this result, from the July 1, 2024, funding valuation for MPFRS, the MPFRS employer normal cost is 3.93% of MPFRS payroll and as of July 1, 2024, under the assumption that all 140 campus police officers transfer to MPFRS, the MPFRS employer normal cost would be 6.04% of MPFRS payroll.

    The amortization of existing plan provision changes does not change as a level dollar amount, however, as a percent of the MPFRS payroll, decreases by 0.09% due to the increase in payroll from the addition of the 140 campus police officers.

    Therefore, measured as of July 1, 2024, the total MPFRS annual recommended employer contribution would increase by approximately $1.6 million or 2.02% of MPFRS payroll if 140 campus police officers joined MPFRS. To see this result, from the July 1, 2024, funding valuation for MPFRS, the MPFRS total annual recommended contribution is 4.39% of MPFRS payroll and as of July 1, 2024, assuming all 140 campus police officers transfer to MPFRS, the MPFRS total annual recommended contribution would be 6.41% of MPFRS payroll, due to SB 35.

Analysis of Impact on Public Pension Policy:

    The campus police officers are currently covered under a defined contribution plan. Campus police officers that choose to transfer to MPFRS would begin in MPFRS with no past service and therefore would be considered new entrants in MPFRS. To avoid overlapping benefits between MPFRS and the defined contribution plan, accruals in the defined contribution plan would presumably stop as of the transfer day into MPFRS. This actuarial note does not address the impact to the defined contribution plan if the campus police officers join MPFRS.

    There may be situations where a campus police officer should not join MPFRS because it may be more valuable for the officer to stay in the defined contribution plan. This actuarial note does not provide financial advice to the campus police officers regarding transferring to MPFRS.

    The average age of the 140 campus police officers is 43, which is older than the current average age of the active MPFRS members, which is 31. The average annual pay for the campus police officers is $76,000 compared to $62,000 for the existing active members of MPFRS. Therefore, the 140 campus police officers in MPFRS would be more expensive than the existing active members in MPFRS.

    More specific, the total annual normal cost for MPFRS as of July 1, 2024 without the campus police joining MPFRS, is 12.29% of payroll (8.50% for the member and 3.79% for the employer); however, the total annual normal cost for only the campus police officers as new hires in MPFRS is 22.30% of payroll (8.50% for the member and 13.80% for the employer). Therefore, we see as a percentage of payroll the 140 campus police officers as new hires in MPFRS are more expensive than the current active members in MPFRS.

    When we blend the current active members of MPFRS with the 140 campus police officers assumed to join MPFRS as a new hire, the total annual normal cost for MPFRS as of July 1, 2024 is 14.33% of payroll (8.50% for the member and 5.83% for the employer), where the campus police officers represent only about 19% of the current active population of MPFRS.

    The total annual normal cost rate for MPFRS as of July 1, 2024 depends on which group of campus police officers choose to join MPFRS. For example, if we arrange the 140 campus police officers by age and assume that only the youngest 98 members transfer to MPFRS, where the 98 represents 70% of the 140 campus police officers that may transfer to MPFRS, then the total annual normal cost for MPFRS as of July 1, 2024 would be 13.46% of payroll (8.50% for the member and 4.96% for the employer).

    For fiscal 2026, funding for MPFRS is through member contributions of 8.50% of payroll and employer contributions of 8.50% of payroll. Therefore, SB 35 is not expected to change these rates.

    However, going forward in the future, the experience of the group of campus police officers may be different from the existing MPFRS active group experience which may lead to future liability losses for MPFRS and may increase the MPFRS employer contribution rate in the future.

    Also, if the campus police officer population grows in MPFRS relative to the non-campus MPFRS members, then the MPFRS employer contribution rate may increase in the future.

Fiscal Note Summary

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

MPFRS consists of local municipalities and does not cover any state employees. For fiscal 2026, funding for MPFRS is through member contributions of 8.50% of payroll and employer contributions of 8.50% of payroll. MPFRS does not impact the costs or revenues of state government.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2025 Increase/Decrease (use"-")	2026 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):

Memorandum

    This Actuarial/Fiscal Note is being submitted by the Consolidated Public Retirement Board. It has been reviewed by the CPRB Actuary. Both the Board and the CPRB Actuary are available upon request for questions.

    For the appropriate actuarial disclosures, see the July 1, 2024, funding valuation report for MPFRS, expected to be published on March 31, 2025.

    In particular, future actuarial measurements may differ significantly from the current measurements shown in this actuarial/fiscal note due to plan experience differing from that anticipated by the economic and demographic assumptions, changes expected as part of the natural operation of the methodology used for these measurements, and changes in plan provisions, applicable law, and regulations.

    Regarding Actuarial Standards of Practice 51, the risk assessment for MPFRS may be affected by allowing campus police officers to join MPFRS to the extent the experience of this transferring group may be different from the current active population of MPFRS, which could lead to losses in the future for the MPFRS plan. If losses occur going forward the current MPFRS employer contribution rate of 8.5% of payroll may increase.

    Kenneth Woodson Jr., the CPRB Board Actuary, is a Fellow of the Society of Actuaries and a Member of the American Academy of Actuaries. He meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this Actuarial/Fiscal Note.

Person submitting Fiscal Note: Kenneth M. Woodson Jr.
Email Address: kenneth.m.woodson@wv.gov