Actuarial Fiscal Note
Date Requested:March 06, 2025
Time Requested:09:36 AM |
| Agency: |
Consolidated Public Retirement Board |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 3317 |
Comm. Sub. |
SB589 |
|
|---|
| CBD Subject: |
Courts; Magistrates |
|---|
|
Retirement Systems Impacted by Legislation:
PERS 2501; JRS 2140
FUND(S):
Special Fund
Sources of Revenue:
Creates New Expense
Legislation creates:
PERS and JRS
Actuarial Note Summary
Impact this measure will have on the liabilities and contributions associated with the retirement system(s).
The Committee Substitute for SB 589 provides an annual salary increase for magistrates from $63,250 to $75,840 beginning July 1, 2025. These salary increases are not expected to materially change the PERS unfunded actuarial accrued liability or the PERS annual required employer contribution.
The bill also provides the following annual salary increases, beginning July 1, 2025:
• The pay for a Family Court Judge increases from $103,950 to $125,416,
• The pay for a Justice of the Supreme Court of Appeals increases from
$149,600 to $167,552,
• The pay for a Circuit Court Judge increases from $138,600 to $155,232, and
• The pay for a Judge of the Intermediate Court of Appeals increases from
$142,500 to $159,600.
In addition to pay increases for Judges, the Committee Substitute for SB 589 would provide the following plan changes to the Judges’ Retirement System (JRS):
(1) JRS Tier 2 Judges would receive JRS Tier 1 benefits on a prospective basis, however, the eligibility conditions for an unreduced benefit for a JRS Tier 2 member would not change.
(2) Allow a JRS Tier 2 participant with 12 years of service to retire early at age 65 with an actuarially reduced benefit, and
(3) The surviving spouse benefit increases from 40% of the member benefit to
50% of the member benefit on a prospective basis for both active and in-pay members.
The Committee Substitute for SB 589 would also suspend JRS ER contributions until the JRS funded percentage is below 150%, or until July 1, 2029, whichever comes first, and finally, it would reinstate the benefit limitations from the “2005 West Virginia Pension Reform” until the limitations sunset on July 1, 2029. Note, if the benefit limitation is reinstated, then the plan provision changes from this bill would not be permitted until July 1, 2029, the date when the limitations sunset. The analysis provided in this Actuarial/Fiscal Note assumes the benefit limitations will not be reinstated.
Gallagher measured the impact of the bill as of July 1, 2024, and based on their analysis, the bill would increase the JRS Unfunded Actuarial Accrued Liability (UAAL) by around $38.840 million ($32.303 million for active and deferred vested members impacted by the bill and $6.537 million for JRS participants currently in-pay that are impacted by the bill). Amortizing the $32.303 million over ten years on a level dollar basis would increase the estimated FY 2026 JRS recommended employer (ER) contribution by $4.818 million and amortizing the $6.537 million over six years on a level dollar basis would increase the FY 2026 JRS recommended ER contribution by $1.431 million.
Also measured as of July 1, 2024, the FY 2026 ER normal cost (accumulated with the CPI-U factor) would increase by $3.818 million due to the bill. Therefore, the bill would increase the estimated FY 2026 JRS recommended ER contribution by $10.067 million, prior to applying the JRS funding credit.
While the JRS funded percentage is at least 100%, the annual JRS recommended ER contribution is the Employer Normal Cost plus amortization of plan provision changes; however, due to JRS over funding, on July 1, 2014, the JRS funding credit was established. While JRS is over funded, this credit is designed to reduce the annual JRS recommended ER contribution to zero but require that the annual JRS recommended ER contribution be no less than the estimated employee (EE) member contributions for the given fiscal year.
Since July 1, 2014, the annual JRS recommended ER contribution has been equal to the estimated EE member contributions for the given fiscal year (accumulated with CPI-U since the most recent pay increase for JRS members).
With and without the bill, the JRS funding credit is large enough to reduce the FY 2026 JRS recommended ER contribution to zero, and therefore the FY 2026 JRS recommended ER contribution is equal to the estimated FY 2026 EE member contributions. Hence, after applying the JRS funding credit, the bill would change the estimated FY 2026 JRS recommended ER contribution by about $45,000, the difference between the estimated EE contributions for FY 2026 with the bill and the estimated EE contributions for FY 2026 without the bill, both accumulated with CPI-U since the prior JRS pay increase.
It is important to note that the bill would reduce the FY 2026 JRS funding credit by $88.067 million.
Therefore, for FY 2027 through FY 2031, the bill will likely require annual JRS recommended ER contributions that are more than the estimated EE member contributions for given fiscal year and would further increase the over funding of JRS, except the bill would suspend contributions through FY 2029, unless the JRS funding percentage is below 150%.
One possible solution is to change the definition of the JRS funding credit. The current definition of the JRS funding credit is the excess of assets above 122.5% of the Present Value of Future Benefits (PVFB) and if we modify this definition to be the excess of assets above 100.0% of the PVFB, then this change will increase the JRS funding credit, while JRS is over funded. Note, this change would require CPRB Board approval to implement. We assume if the bill becomes law, then the JRS funding credit will be modified to be the excess of assets above 100.0% of the PVFB.
If the JRS funding credit is changed in this manner then for each year in the projection, the JRS recommended ER contribution is expected to be equal to the estimated EE member contributions for the given fiscal year (accumulated with CPI-U since the prior JRS pay increase).
It is important to note that the actuarial costs displayed in this actuarial/fiscal note are based on a middle-of-the-road future path, where all the assumptions are met with no experience gains or losses in the future. The actual cost of the bill may be different from the expected path results presented in this Actuarial/Fiscal note.
Gallagher provided two deterministic liability projections through FY 2035, one without the plan provisions of the bill and the other with the plan provisions of the bill.
The CPRB generated the asset/liability projection scenarios based on the liability projections that were provided by Gallagher. The CPRB Board Actuary has reviewed the liability projections from Gallagher, and they are reasonable.
For the deterministic projections used in this Actuarial/Fiscal note, the new entrant profile was developed based on an analysis of recent new hires in JRS. All new entrants are Tier 2. As a Judge leaves active status, the projection replaces the Judge with a new entrant that is the same type of Judge, and the active count is level during the projection period, FY 2025 through FY 2035.
The projection assumptions and the valuation assumptions are the same and are equal to the assumptions from the JRS July 1, 2024, funding valuation, except pay is level between valuations.
The data and plan provisions used in the projections are the same data and plan provisions used in the JRS July 1, 2024, funding valuation, except for the projection with the plan provisions from the bill, which incorporates the JRS pay increases, and the plan changes outlined above.
Gallagher provided the following actuarial disclosures:
The results in this analysis were developed by Gallagher for the West Virginia Consolidated Retirement Board staff using generally accepted actuarial principles and techniques in accordance with all applicable Actuarial Standards of Practice (ASOPs). The purpose of this deliverable is to provide a liability projection based on July 1, 2024, valuation results for JRS showing the estimated impact of select changes to plan provisions. Use of this analysis for any other purpose may not be appropriate and may result in mistaken conclusions due to failure to understand applicable assumptions, methodologies, or inapplicability of the information for that purpose. Because of the risk of misinterpretation of actuarial results, you should ask Gallagher to review any statement you wish to make on the results contained in this Actuarial/Fiscal Note. Gallagher will accept no liability for any such statement made without prior review by Gallagher. No third-party recipient should rely upon Gallagher’s work product absent involvement of Gallagher or without prior approval by Gallagher.
Unless otherwise noted, the data, assumptions, methods and plan provisions used are the same as those to be disclosed in the upcoming July 1, 2024, valuation for JRS.
ASOPs 27 and 35 require the actuary to disclose the information and analysis used to support the actuary’s determination that the assumptions selected by a party other than the actuary do not significantly conflict with what, in the actuary’s professional judgment, are reasonable for the purpose of the measurement. Based on the actuaries’ review of the assumptions used, including consistency with other assumptions used in the valuation, the actuaries believe the assumptions, in the actuaries’ professional judgment, are reasonable for the purpose of the measurement.
Elizabeth Wiley is a Member of the American Academy of Actuaries who meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in the analysis of this Actuarial/Fiscal Note and she is available to answer questions regarding the analysis.
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 |
$38,840,000.00 |
$10,067,000.00 |
51.81 % |
| Normal Cost of System |
N/A |
$3,818,000.00 |
18.38 % |
| Past Service Liabilities |
$38,840,000.00 |
$6,249,000.00 |
33.43 % |
Fiscal Year Past Service
Amortization Period Ends |
N/A |
2035 |
N/A |
Explanation of above Actuarial estimates:
Gallagher measured the impact of the bill as of July 1, 2024, and based on their analysis, the bill would increase the JRS Unfunded Actuarial Accrued Liability (UAAL) by around $38.840 million ($32.303 million for active and deferred vested members impacted by the bill and $6.537 million for JRS participants currently in-pay that are impacted by the bill). Amortizing the $32.303 million over ten years on a level dollar basis would increase the estimated FY 2026 JRS recommended employer (ER) contribution by $4.818 million and amortizing the $6.537 million over six years on a level dollar basis would increase the FY 2026 JRS recommended ER contribution by $1.431 million.
Also measured as of July 1, 2024, the FY 2026 ER normal cost (accumulated with the CPI-U factor) would increase by $3.818 million due to the bill. Therefore, the bill would increase the estimated FY 2026 JRS recommended ER contribution by $10.067 million, prior to applying the JRS funding credit.
Analysis of Impact on Public Pension Policy:
It is important to note that the bill would reduce the FY 2026 JRS funding credit by $88.067 million.
Therefore, for FY 2027 through FY 2031, the bill will likely require annual JRS recommended ER contributions that are more than the estimated EE member contributions for the given fiscal year and would further increase the over funding of JRS, except the bill would suspend contributions through FY 2029, unless the JRS funding percentage is below 150%.
One possible solution is to change the definition of the JRS funding credit. The current definition of the JRS funding credit is the excess of assets above 122.5% of the Present Value of Future Benefits (PVFB) and if we modify this definition to be the excess of assets above 100.0% of the PVFB, then this change will increase the JRS funding credit, while JRS is over funded. Note, this change would require CPRB Board approval to implement. We assume if the bill becomes law, then the JRS funding credit will be modified to be the excess of assets above 100.0% of the PVFB.
If the JRS funding credit is changed in this manner then for each year in the projection, the JRS recommended ER contribution is expected to be equal to the estimated EE member contributions for the given fiscal year (accumulated with
CPI-U since the prior JRS pay increase).
It is important to note that the actuarial costs displayed in this actuarial/fiscal note are based on a middle-of-the-road future path, where all the assumptions are met with no experience gains or losses in the future. The actual cost of the bill may be different from the expected path results presented in this Actuarial/Fiscal note.
Under a middle-of-the road scenario with or without the bill, we expect the annual JRS recommended ER contribution to be equal to the expected JRS EE member contributions for each year in the foreseeable future, provided the JRS funding credit definition is changed from the excess of assets above 122.5% of PVFB to the excess of assets above 100.0% of PVFB. This change will avoid expected annual JRS recommended ER contributions more than the estimated EE member contributions for the given fiscal year under the middle-of-the-road scenario presented in this Actuarial/Fiscal Note, and under some mildly adverse scenarios, but not all scenarios. Some future scenarios may eliminate the JRS funding credit and require annual JRS recommended ER contributions greater than EE member contributions for the given fiscal year.
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The Committee Substitute for SB 589 provides an annual salary increase for magistrates from $63,250 to $75,840 beginning July 1, 2025. These salary increases are not expected to materially change the PERS unfunded actuarial accrued liability or the PERS annual required employer contribution.
The bill also provides the following annual salary increases, beginning July 1, 2025:
• The pay for a Family Court Judge increases from $103,950 to $125,416,
• The pay for a Justice of the Supreme Court of Appeals increases from
$149,600 to $167,552,
• The pay for a Circuit Court Judge increases from $138,600 to $155,232, and
• The pay for a Judge of the Intermediate Court of Appeals increases from
$142,500 to $159,600.
In addition to pay increases for Judges, the Committee Substitute for SB 589 would provide the following plan changes to the Judges’ Retirement System (JRS):
(1) JRS Tier 2 Judges would receive JRS Tier 1 benefits on a prospective basis,
however, the eligibility conditions for an unreduced benefit for a JRS Tier 2
member would not change.
(2) Allow a JRS Tier 2 participant with 12 years of service to retire early at age 65 with an actuarially reduced benefit, and
(3) The surviving spouse benefit increases from 40% of the member benefit to
50% of the member benefit on a prospective basis for both active and in-pay members.
The Committee Substitute for SB 589 would also suspend JRS ER contributions until the JRS funded percentage is below 150%, or until July 1, 2029, whichever comes first, and finally, it would reinstate the benefit limitations from the “2005 West Virginia Pension Reform” until the limitations sunset on July 1, 2029. Note, if the benefit limitation is reinstated, then the plan provision changes from this bill would not be permitted until July 1, 2029, the date when the limitations sunset. The analysis provided in this Actuarial/Fiscal Note assumes the benefit limitations will not be reinstated.
Gallagher measured the impact of the bill as of July 1, 2024, and based on their analysis, the bill would increase the JRS Unfunded Actuarial Accrued Liability (UAAL) by around $38.840 million ($32.303 million for active and deferred vested members impacted by the bill and $6.537 million for JRS participants currently in- pay that are impacted by the bill). Amortizing the $32.303 million over ten years on a level dollar basis would increase the estimated FY 2026 JRS recommended employer (ER) contribution by $4.818 million and amortizing the $6.537 million over six years on a level dollar basis would increase the FY 2026 JRS recommended ER contribution by $1.431 million.
Also measured as of July 1, 2024, the FY 2026 ER normal cost (accumulated with the CPI-U factor) would increase by $3.818 million due to the bill. Therefore, the bill would increase the estimated FY 2026 JRS recommended ER contribution by $10.067 million, prior to applying the JRS funding credit.
While the JRS funded percentage is at least 100%, the annual JRS recommended ER contribution is the Employer Normal Cost plus amortization of plan provision changes; however, due to JRS over funding, on July 1, 2014, the JRS funding credit was established. While JRS is over funded, this credit is designed to reduce the annual JRS recommended ER contribution to zero but require that the annual JRS recommended ER contribution be no less than the estimated employee (EE) member contributions for the given fiscal year.
Since July 1, 2014, the annual JRS recommended ER contribution has been equal to the estimated EE member contributions for the given fiscal year (accumulated with CPI-U since the most recent pay increase for JRS members).
With and without the bill, the JRS funding credit is large enough to reduce the FY 2026 JRS recommended ER contribution to zero, and therefore the FY 2026 JRS recommended ER contribution is equal to the estimated FY 2026 EE member contributions. Hence, after applying the JRS funding credit, the bill would change the estimated FY 2026 JRS recommended ER contribution by about $45,000, the difference between the estimated EE contributions for FY 2026 with the bill and the estimated EE contributions for FY 2026 without the bill, both accumulated with CPI-U since the prior JRS pay increase.
It is important to note that the bill would reduce the FY 2026 JRS funding credit by $88.067 million.
Therefore, for FY 2027 through FY 2031, the bill will likely require annual JRS recommended ER contributions that are more than the estimated EE member contributions for given fiscal year and would further increase the over funding of JRS, except the bill would suspend contributions through FY 2029, unless the JRS funding percentage is below 150%.
One possible solution is to change the definition of the JRS funding credit. The current definition of the JRS funding credit is the excess of assets above 122.5% of the Present Value of Future Benefits (PVFB) and if we modify this definition to be the excess of assets above 100.0% of the PVFB, then this change will increase the JRS funding credit, while JRS is over funded. Note, this change would require CPRB Board approval to implement. We assume if the bill becomes law, then the JRS funding credit will be modified to be the excess of assets above 100.0% of the PVFB.
If the JRS funding credit is changed in this manner then for each year in the projection, the JRS recommended ER contribution is expected to be equal to the estimated EE member contributions for the given fiscal year (accumulated with CPI-U since the prior JRS pay increase).
It is important to note that the actuarial costs displayed in this actuarial/fiscal note are based on a middle-of-the-road future path, where all the assumptions are met with no experience gains or losses in the future. The actual cost of the bill may be different from the expected path results presented in this Actuarial/Fiscal note.
Gallagher provided two deterministic liability projections through FY 2035, one without the plan provisions of the bill and the other with the plan provisions of the bill.
The CPRB generated the asset/liability projection scenarios based on the liability projections that were provided by Gallagher. The CPRB Board Actuary has reviewed the liability projections from Gallagher, and they are reasonable.
For the deterministic projections used in this Actuarial/Fiscal note, the new entrant profile was developed based on an analysis of recent new hires in JRS. All new entrants are Tier 2. As a Judge leaves active status, the projection replaces the Judge with a new entrant that is the same type of Judge, and the active count is level during the projection period, FY 2025 through FY 2035.
The projection assumptions and the valuation assumptions are the same and are equal to the assumptions from the JRS July 1, 2024, funding valuation, except pay is level between valuations.
The data and plan provisions used in the projections are the same data and plan provisions used in the JRS July 1, 2024, funding valuation, except for the projection with the plan provisions from the bill, which incorporates the JRS pay increases, and the plan changes outlined above.
Gallagher provided the following actuarial disclosures:
The results in this analysis were developed by Gallagher for the West Virginia Consolidated Retirement Board staff using generally accepted actuarial principles and techniques in accordance with all applicable Actuarial Standards of Practice (ASOPs). The purpose of this deliverable is to provide a liability projection based on July 1, 2024, valuation results for JRS showing the estimated impact of select changes to plan provisions. Use of this analysis for any other purpose may not be appropriate and may result in mistaken conclusions due to failure to understand applicable assumptions, methodologies, or inapplicability of the information for that purpose. Because of the risk of misinterpretation of actuarial results, you should ask Gallagher to review any statement you wish to make on the results contained in this Actuarial/Fiscal Note. Gallagher will accept no liability for any such statement made without prior review by Gallagher. No third-party recipient should rely upon Gallagher’s work product absent involvement of Gallagher or without prior approval by Gallagher.
Unless otherwise noted, the data, assumptions, methods and plan provisions used are the same as those to be disclosed in the upcoming July 1, 2024, valuation for JRS.
ASOPs 27 and 35 require the actuary to disclose the information and analysis used to support the actuary’s determination that the assumptions selected by a party other than the actuary do not significantly conflict with what, in the actuary’s professional judgment, are reasonable for the purpose of the measurement. Based on the actuaries’ review of the assumptions used, including consistency with other assumptions used in the valuation, the actuaries believe the assumptions, in the actuaries’ professional judgment, are reasonable for the purpose of the measurement.
Elizabeth Wiley is a Member of the American Academy of Actuaries who meets the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in the analysis of this Actuarial/Fiscal Note and she is available to answer questions regarding the analysis.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
45,000 |
56,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
45,000 |
56,000 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above Fiscal Note estimates (include possible long-range effect):
Without reflecting the bill, the estimated FY 2026 JRS recommended ER contribution is $5.7 million and equals $1.247 million after reflecting the JRS funding credit.
With the bill, the estimated FY 2026 JRS recommended ER contribution is $15.767 million and equals $1.292 million after reflecting the JRS funding credit.
Therefore, before applying the JRS funding credit, the FY 2026 JRS recommended ER contribution increases by $10.067 million due to the bill, and it increases by $45,000 from the bill, after applying the funding credit, where the $45,000 is the difference between the estimated EE contributions for FY 2026 with the bill and the estimated EE contributions for FY 2026 without the bill, both accumulated with CPI-U since the prior JRS pay increase.
Without reflecting the bill, the estimated FY 2035 JRS recommended ER contribution is $7.384 million and equals $1.592 million after reflecting the JRS funding credit.
With the bill, the estimated FY 2035 JRS recommended ER contribution is $18.643 million and equals $1.648 million after reflecting the JRS funding credit.
Therefore, before applying the JRS funding credit, the FY 2035 JRS recommended ER contribution increases by $11.259 million due to the bill, and it increases by $56,000 from the bill, after applying the funding credit, where the $56,000 is the difference between the estimated EE contributions for FY 2035 with the bill and the estimated EE contributions for FY 2035 without the bill, both accumulated with CPI-U since the prior JRS pay increase.
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 reports for PERS and JRS, expected to be published in March 2025.
In particular, future actuarial measurements may differ significantly from current measurements due to System 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 system provisions or applicable law or regulations. An analysis of the potential range of such future differences is beyond the scope of the request addressed here.
Regarding Actuarial Standards of Practice 51, the risk assessment for JRS may be affected by JRS pay increases and plan provision changes from the bill to the extent that higher contributions may be required if the JRS funding credit is reduced to zero from adverse conditions in the future.
Actuarial Standard of Practice No. 56 provides guidance to actuaries when performing actuarial services with respect to designing, developing, selecting, modifying, using, reviewing, or evaluating models. The CPRB uses third-party software in the performance of annual actuarial valuations and projections.
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