Actuarial Fiscal Note
Date Requested:January 23, 2024
Time Requested:02:00 PM |
| Agency: |
Consolidated Public Retirement Board |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 2633 |
Introduced |
SB446 |
|
|---|
| CBD Subject: |
Natural Resources; Retirement |
|---|
|
Retirement Systems Impacted by Legislation:
NRPORS 2397
FUND(S):
Special Fund
Sources of Revenue:
Creates New Expense
Legislation creates:
NRPORS
Actuarial Note Summary
Impact this measure will have on the liabilities and contributions associated with the retirement system(s).
SB 446 has two technical corrections. In the definition section for “Hour of Service”, §20-18-2 (v)(1), the sentence “Each hour for which a member is paid;” should not have a strikethrough. In section §20-18-8 (b), the sentence “An additional 12 percent of the monthly salary of each member shall be paid to the fund by the employer as annually reviewed and actuarially set by the board.” should be replaced with “An amount equal to an additional percent of the monthly salary of each member shall be paid to the fund by the employer as annually reviewed and actuarially set by the board.”
The purpose of SB 446 is to remove the NRPORS annual employer contribution rate cap of 12% of payroll and replace it with a NRPORS annual employer contribution that is actuarially set by the Consolidated Public Retirement Board (CPRB). The bill also modifies the definition of “Accrued Benefit” in NRPORS as follows: “members who retire on or after January 1, 2027, shall have an accrued benefit of two and three-fourths percent of the member’s final average salary multiplied by the member’s years of credited service”. Finally, the bill provides additional NRPORS employer contributions of $850,000 per year for FY 2025 through FY 2029 in addition to the NPRORS annual recommended employer contributions for those fiscal years.
Removing the NRPORS employer contribution rate cap of 12% of payroll and replacing it with the amount set actuarially by the CPRB is required to assure adequate long-term funding for NRPORS. It is expected that the annual recommended NRPORS employer contribution rate will exceed 12% of payroll for the foreseeable future, therefore, artificially capping the NRPORS employer rate at 12% of payroll could lead to higher unfunded liabilities for NRPORS in the future.
To analyze the impact from increasing the benefit multiplier to 2.75% for all years of credited service and providing the additional employer contributions of $850,000, per year for FY 2025 through FY 2029, we perform two deterministic asset/liability projection scenarios.
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 NRPORS.
Scenario 1 is the baseline projection scenario which uses the current assumptions and plan provisions from the July 1, 2023, funding valuation for NRPORS, without including the provisions from the potential bill, except the employer contribution cap is removed and replaced by the employer contribution amount actuarially set by the CPRB. In this scenario no additional contributions are made to the plan and the benefit multiplier is not increased to 2.75% for all credited service.
Scenario 2 is the projection scenario that incorporates the bill. This scenario also uses the current assumptions from the July 1, 2023, funding valuation for NRPORS valuation assumptions, however, anticipating fewer retirements prior to the benefit multiplier increase in January 2027, the expected experience is modified to allow no retirements for Calendar Years 2023 through 2026 and twice the current retirement rates for Calendar Year 2027. The plan provisions used in Scenario 2 are the same plan provisions from the July 1, 2023, funding valuation for NRPORS, except, retirements on or after January 1, 2027, have a benefit multiplier of 2.75% applied to all credited service. Under scenario 2, the annual recommended employer contribution is not capped at 12.0% of payroll, and we assume additional contributions of $850,000 per year for FY 2025 through FY 2029 are made above and beyond the employer contribution amount actuarially set by the CPRB.
Measured as of July 1, 2024, the impact from the benefit multiplier increase to 2.75% applied to all credited service and the additional employer contributions of $850,000 per year for FY 2025 through FY 2029 would increase the unfunded actuarial accrued liability (UAAL) for NRPORS by approximately $1.9 million and amortizing this amount by June 30, 2051 (27 years from July 1, 2024) on a level dollar basis would increase the annual recommended employer contribution for NRPORS by approximately $160,000 or 1.78% of FY 2025 NRPORS payroll .
Moreover, these changes would increase the NRPORS employer normal cost by about $109,000 per year, or 1.15% of FY 2025 NRPORS payroll. Therefore, measured as of July 1, 2024, the total FY 2025 NRPORS annual recommended employer contribution would increase by approximately $269,000, or 2.93% of NRPORS payroll, from these changes.
The UAAL from scenario 1 is expected to increase to $8.8 million as of July 1, 2025, and then orderly decrease to $5.1 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 18.0% of payroll for FY 2026 and then orderly decreases to 15.0% of payroll, or $1.8 million for FY 2043.
The UAAL from scenario 2 is expected to increase to $10.7 million as of July 1, 2025, and then orderly decrease to $4.4 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 20.5% of payroll for FY 2026 and then orderly decreases to 15.9% of payroll, or $1.9 million for FY 2043. However, under scenario 2, additional employer contributions of $850,000 per year are made for FY 2025 through FY 2029.
Comparing the annual recommended employer contribution for NRPORS, under the two scenarios outlined above, we see that in FY 2043 the difference is expected to be around $100,000. This small amount indicates that the enhanced benefit multiplier is mostly paid for through the additional contributions of $850,000 per year for FY 2025 through FY 2029.
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 from SB 446 may be different from the expected path results presented in this actuarial/fiscal note.
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 |
$1,900,000.00 |
$269,000.00 |
2.93 % |
| Normal Cost of System |
N/A |
$109,000.00 |
1.15 % |
| Past Service Liabilities |
$1,900,000.00 |
$160,000.00 |
1.78 % |
Fiscal Year Past Service
Amortization Period Ends |
N/A |
2051 |
N/A |
Explanation of above Actuarial estimates:
Measured as of July 1, 2024, SB 446 would increase the unfunded actuarial accrued liability for NRPORS by approximately $1.9 million and amortizing this amount by June 30, 2051 (27 years from July 1, 2024) on a level dollar basis would increase the annual recommended employer contribution for NRPORS by approximately $160,000 or 1.78% of FY 2025 NRPORS payroll.
Moreover, SB 446 would increase the NRPORS employer normal cost by about $109,000 per year, or 1.15% of FY 2025 TRS payroll. Therefore, measured as of July 1, 2024, the total FY 2025 NRPORS annual recommended employer contribution would increase by approximately $269,000, or 2.93% of NRPORS payroll, due to the benefit multiplier increase to 2.75% for all credited service and the additional employer contributions of $850,000 per year for FY 2025 through FY 2029.
Analysis of Impact on Public Pension Policy:
To analyze the impact from increasing the benefit multiplier to 2.75% for all years of credited service and providing the additional employer contributions of $850,000 per year for FY 2025 through FY 2029, we perform two deterministic asset/liability projection scenarios.
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 NRPORS.
Scenario 1 is the baseline projection scenario which uses the current assumptions and plan provisions from the July 1, 2023, funding valuation for NRPORS, without including the provisions from the potential bill, except the employer contribution cap is removed and replaced by the employer contribution amount actuarially set by the CPRB. In this scenario no additional contributions are made to the plan and the benefit multiplier is not increased to 2.75% for all credited service.
Scenario 2 is the projection scenario that incorporates the bill. This scenario also uses the current assumptions from the July 1, 2023, funding valuation for NRPORS valuation assumptions, however, anticipating fewer retirements prior to the benefit multiplier increase in January 2027, the expected experience is modified to allow no retirements for Calendar Years 2023 through 2026 and twice the current retirement rates for Calendar Year 2027. The plan provisions used in Scenario 2 are the same plan provisions from the July 1, 2023, funding valuation for NRPORS, except, retirements on or after January 1, 2027, have a benefit multiplier of 2.75% applied to all credited service. Under scenario 2, the annual recommended employer contribution is not capped at 12.0% of payroll, and we assume additional contributions of $850,000 per year for FY 2025 through FY 2029 are made above and beyond the employer contribution amount actuarially set by the CPRB.
Measured as of July 1, 2024, the impact from the benefit multiplier increase to 2.75% applied to all credited service and the additional employer contributions of $850,000 per year for FY 2025 through FY 2029 would increase the unfunded actuarial accrued liability for NRPORS by approximately $1.9 million and amortizing this amount by June 30, 2051 (27 years from July 1, 2024) on a level dollar basis would increase the annual recommended employer contribution for NRPORS by approximately $160,000 or 1.78% of FY 2025 NRPORS payroll .
Moreover, these changes would increase the NRPORS employer normal cost by about $109,000 per year, or 1.15% of FY 2025 NRPORS payroll. Therefore, measured as of July 1, 2024, the total FY 2025 NRPORS annual recommended employer contribution would increase by approximately $269,000, or 2.93% of NRPORS payroll, from these changes.
The UAAL from scenario 1 is expected to increase to $8.8 million as of July 1, 2025, and then orderly decrease to $5.1 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 18.0% of payroll for FY 2026 and then orderly decreases to 15.0% of payroll, or $1.8 million for FY 2043.
The UAAL from scenario 2 is expected to increase to $10.7 million as of July 1, 2025, and then orderly decrease to $4.4 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 20.5% of payroll for FY 2026 and then orderly decreases to 15.9% of payroll, or $1.9 million for FY 2043. However, under scenario 2, additional employer contributions of $850,000 per year are made for FY 2025 through FY 2029.
Comparing the annual recommended employer contribution for NRPORS, under the two scenarios outlined above, we see that in FY 2043 the difference is expected to be around $100,000. This small amount indicates that the enhanced benefit multiplier is mostly paid for through the additional contributions of $850,000 per year for FY 2025 through FY 2029.
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 from SB 446 may be different from the expected path results presented in this actuarial/fiscal note.
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
SB 446 has two technical corrections. In the definition section for “Hour of Service”, §20-18-2 (v)(1), the sentence “Each hour for which a member is paid;” should not have a strikethrough. In section §20-18-8 (b), the sentence “An additional 12 percent of the monthly salary of each member shall be paid to the fund by the employer as annually reviewed and actuarially set by the board.” should be replaced with “An amount equal to an additional percent of the monthly salary of each member shall be paid to the fund by the employer as annually reviewed and actuarially set by the board.”
The purpose of SB 446 is to remove the NRPORS annual employer contribution rate cap of 12% of payroll and replace it with a NRPORS annual employer contribution that is actuarially set by the Consolidated Public Retirement Board (CPRB). The bill also modifies the definition of “Accrued Benefit” in NRPORS as follows: “members who retire on or after January 1, 2027, shall have an accrued benefit of two and three-fourths percent of the member’s final average salary multiplied by the member’s years of credited service”. Finally, the bill provides additional NRPORS employer contributions of $850,000 per year for FY 2025 through FY 2029 in addition to the NPRORS annual recommended employer contributions for those fiscal years.
Removing the NRPORS employer contribution rate cap of 12% of payroll and replacing it with the amount set actuarially by the CPRB is required to assure adequate long-term funding for NRPORS. It is expected that the annual recommended NRPORS employer contribution rate will exceed 12% of payroll for the foreseeable future, therefore, artificially capping the NRPORS employer rate at 12% of payroll could lead to higher unfunded liabilities for NRPORS in the future.
To analyze the impact from increasing the benefit multiplier to 2.75% for all years of credited service and providing the additional employer contributions of $850,000 per year for FY 2025 through FY 2029, we perform two deterministic asset/liability projection scenarios.
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 NRPORS.
Scenario 1 is the baseline projection scenario which uses the current assumptions and plan provisions from the July 1, 2023, funding valuation for NRPORS, without including the provisions from the potential bill, except the employer contribution cap is removed and replaced by the employer contribution amount actuarially set by the CPRB. In this scenario no additional contributions are made to the plan and the benefit multiplier is not increased to 2.75% for all credited service.
Scenario 2 is the projection scenario that incorporates the bill. This scenario also uses the current assumptions from the July 1, 2023, funding valuation for NRPORS valuation assumptions, however, anticipating fewer retirements prior to the benefit multiplier increase in January 2027, the expected experience is modified to allow no retirements for Calendar Years 2023 through 2026 and twice the current retirement rates for Calendar Year 2027. The plan provisions used in Scenario 2 are the same plan provisions from the July 1, 2023, funding valuation for NRPORS, except, retirements on or after January 1, 2027, have a benefit multiplier of 2.75% applied to all credited service. Under scenario 2, the annual recommended employer contribution is not capped at 12.0% of payroll, and we assume additional contributions of $850,000 per year for FY 2025 through FY 2029 are made above and beyond the employer contribution amount actuarially set by the CPRB.
Measured as of July 1, 2024, the impact from the benefit multiplier increase to 2.75% applied to all credited service and the additional employer contributions of $850,000, per year for FY 2025 through FY 2029, would increase the unfunded actuarial accrued liability (UAAL) for NRPORS by approximately $1.9 million and amortizing this amount by June 30, 2051 (27 years from July 1, 2024) on a level dollar basis would increase the annual recommended employer contribution for NRPORS by approximately $160,000 or 1.78% of FY 2025 NRPORS payroll.
Moreover, these changes would increase the NRPORS employer normal cost by about $109,000 per year, or 1.15% of FY 2025 NRPORS payroll. Therefore, measured as of July 1, 2024, the total FY 2025 NRPORS annual recommended employer contribution would increase by approximately $269,000, or 2.93% of NRPORS payroll, from these changes.
The UAAL from scenario 1 is expected to increase to $8.8 million as of July 1, 2025, and then orderly decrease to $5.1 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 18.0% of payroll for FY 2026 and then orderly decreases to 15.0% of payroll, or $1.8 million for FY 2043.
The UAAL from scenario 2 is expected to increase to $10.7 million as of July 1, 2025, and then orderly decrease to $4.4 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 20.5% of payroll for FY 2026 and then orderly decreases to 15.9% of payroll, or $1.9 million for FY 2043. However, under scenario 2, additional employer contributions of $850,000 per year are made for FY 2025 through FY 2029.
Comparing the annual recommended employer contribution for NRPORS, under the two scenarios outlined above, we see that in FY 2043 the difference is expected to be around $100,000. This small amount indicates that the enhanced benefit multiplier is mostly paid for through the additional contributions of $850,000 per year for FY 2025 through FY 2029.
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 from SB 446 may be different from the expected path results presented in this actuarial/fiscal note.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2024
Increase/Decrease
(use"-") |
2025
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
294,000 |
100,000 |
| Personal Services |
0 |
0 |
0 |
| Current Expenses |
0 |
25,000 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
0 |
0 |
| Other |
0 |
269,000 |
100,000 |
| 2. Estimated Total Revenues |
0 |
0 |
0 |
Explanation of above Fiscal Note estimates (include possible long-range effect):
In addition to the increase in the NRPORS annual recommended employer cost of $269,000, or 2.93% of payroll for FY 2025, there is a one-time $25,000 expense to setup the administrative software to increase the benefit multiplier to 2.75% for all credited service for retirements on or after January 2027.
To analyze the impact from increasing the benefit multiplier to 2.75% for all years of credited service and providing the additional employer contributions of $850,000 per year for FY 2025 through FY 2029, we perform two deterministic asset/liability projection scenarios.
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 NRPORS.
Scenario 1 is the baseline projection scenario which uses the current assumptions and plan provisions from the July 1, 2023, funding valuation for NRPORS, without including the provisions from the potential bill, except the employer contribution cap is removed and replaced by the employer contribution amount actuarially set by the CPRB. In this scenario no additional contributions are made to the plan and the benefit multiplier is not increased to 2.75% for all credited service.
Scenario 2 is the projection scenario that incorporates the bill. This scenario also uses the current assumptions from the July 1, 2023, funding valuation for NRPORS valuation assumptions, however, anticipating fewer retirements prior to the benefit multiplier increase in January 2027, the expected experience is modified to allow no retirements for Calendar Years 2023 through 2026 and twice the current retirement rates for Calendar Year 2027. The plan provisions used in Scenario 2 are the same plan provisions from the July 1, 2023, funding valuation for NRPORS, except, retirements on or after January 1, 2027, have a benefit multiplier of 2.75% applied to all credited service. Under scenario 2, the annual recommended employer contribution is not capped at 12.0% of payroll, and we assume additional contributions of $850,000 per year for FY 2025 through FY 2029 are made above and beyond the employer contribution amount actuarially set by the CPRB.
The UAAL from scenario 1 is expected to increase to $8.8 million as of July 1, 2025, and then orderly decrease to $5.1 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 18.0% of payroll for FY 2026 and then orderly decreases to 15.0% of payroll, or $1.8 million for FY 2043.
The UAAL from scenario 2 is expected to increase to $10.7 million as of July 1, 2025, and then orderly decrease to $4.4 million as of July 1, 2042. The actuarially recommended employer contribution rate ranges from 20.5% of payroll for FY 2026 and then orderly decreases to 15.9% of payroll, or $1.9 million for FY 2043. However, under scenario 2, additional employer contributions of $850,000 per year are made for FY 2025 through FY 2029.
Comparing the annual recommended employer contribution for NRPORS, under the two scenarios outlined above, we see that in FY 2043 the difference is expected to be around $100,000. This small amount indicates that the enhanced benefit multiplier is mostly paid for through the additional contributions of $850,000 per year for FY 2025 through FY 2029.
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 from SB 446 may be different from the expected path results presented in this actuarial/fiscal note.
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, 2023, funding valuation report for NRPORS, expected to be published in March 2024.
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 NRPORS may be affected by the benefit multiplier increase to the extent that the higher contributions necessitated by its addition may not be covered. Removing the NRPORS employer contribution rate cap of 12% of payroll and replacing it with the amount set actuarially by the CPRB is required to assure adequate long-term funding for NRPORS.
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