Date Requested:March 14, 2005
Time Requested:01:24 PM
Agency: Consolidated Public Retirement Board
CBD Number: Version: Bill Number: Resolution Number:
Intro HB3007
CBD Subject: Merge & Consolidate Teachers Defined Con
TRS account 2601 and TDC account 2191
Sources of Revenue
General Fund
Legislation creates:
Neither Program nor Fund

Fiscal Note Summary

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

    Actuarial Note Regarding Pension Legislation
    The Bill reopens TRS to new employees eligible for coverage under teachers retirement effective July 1, 2005. The Bill additionally provides for an election of TDC members to decide if TDC should be merged into TRS effective July 1, 2006.
    To reopen TRS and close TDC to new membership will reduce the current contribution requirements for service (or Normal Cost) from 7.5% of payroll for new members under TDC down to 4.34% of payroll under TRS. For FY 2006, this is expected to reduce the employer contribution requirement by about $2,287,000. The expected net impact on the School Aid Formula appropriation for FY 2006 is a reduction of $1,830,000. The reduction for FY 2007 is expected to be $4,398,000, FY 2008 is $6,819,000 with the savings increasing annually thereafter. For the 30 year period from FY 2006 through FY 2034, the total contribution reduction expected is approximately $1,452,000,000.
    The election provision requires significant education and an election process covering about 22,000 TDC members. The election will take place in FY 2006 and is expected to have an administrative expense estimated at $2,000,000. These expenses cannot be paid from the TDC nor TRS trust funds and must be funded separately to implement the requirements of this Bill.
    If the election is in the affirmative for a merger of TDC into TRS effective July 1, 2006, then a one time contract discontinuation charge will be incurred with Great West estimated at $400,000 payable in FY 2007. Based on the study, the TRS employer Normal Cost rate would be 4.34% of payroll. An initial Unfunded Actuarial Accrued Liability estimated at around $13,478,000 will be created in TRS July 1, 2006. Based on the current TRS amortization through FY 2034, the FY 2007 contribution requirement would decrease by approximately $24,169,000. The savings would increase to $26,893,000 for FY 2008, to $29,838,000 for FY 2009 and continue to increase each year as TRS covered payroll increases and both existing TDC members and new teachers are brought into TRS. Through FY 2034, the total contribution savings are estimated at about $1,875,000,000.
    If the election is against the merger, TDC would continue to operate as a closed system until all current TDC members have terminated or retired and taken their full distributions. The additional savings following the merger over the savings discussed in the initial reopening of TRS would not occur. Without the merger, the contribution savings through FY 2034 is estimated to be $1,452,000,000 instead of $1,875,000,000.
    All cost estimates are based on the current TDC and TRS benefit provisions. The actuarial basis for TRS costs are based on the actuarial valuation assumptions for TRS adopted by the CPRB effective July 1, 2003 and will remain in effect until modified by the Board. Future changes in economic conditions as well as the impact of TRS membership on member behavior will impact future actuarial cost determinations and could either increase or decrease the estimated savings.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
Fiscal Year
(Upon Full
1. Estmated Total Cost 0 -287,000 -23,769,000
Personal Services 0 0 0
Current Expenses 0 2,000,000 400,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 -2,287,000 -24,169,000
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    The fiscal impact analysis is based on the 2003 updated study regarding the merger of the TDC into TRS, or the reopening of TRS with the closure of TDC to new members. The primary analysis in the study was through FY 2034, which is the current TRS amortization period for its Unfunded Actuarial Accrued Liability. Actuarial liabilities and cost projections were prepared by the Board Actuary with assistance from Mellon HR&IS, the CPRB’s outside actuaries. The results of the study were reviewed for the Legislature by Segal Consultants as independent actuaries. The 2005 projections are based on the study updated to take into account July 1, 2004 payroll and TDC account information. Updated projections were reviewed by Mellon.
    Cost for the Bill are broken down into three components:
    First, the administrative cost of developing education materials, providing personalized education for about 22,000 TDC members, plus holding the election was estimated at $2,000,000. The undertaking would be at the direction and supervision of the CPRB, but would be contracted to professional service providers with the proper expertise to carry out this significant undertaking. A special appropriation by the Legislature would be required to cover the costs. These expenses cannot be passed on as regular CPRB administrative expenses for the plans administered by the CPRB under IRS Trust Expense guidelines.
    Second, the cost savings for reopening TRS to new members and closing TDC to new membership is based on a current year employer contribution analysis. For TDC, employers are required to contribute 7.5% of members payroll. Based on the study, the TRS employer Normal Cost rate is 4.34% of payroll, a reduction of 3.16% of payroll annually for newly hired members. Existing TRS members have an employer Normal Cost rate of 3.2% of payroll.
    Third, if the merger is voted down, then no additional savings over the second item will occur. If voted in the affirmative, then a reduction in the 7.5% of TDC employer contribution down to the 4.34% of TRS Normal Cost will occur for the entire TDC active payroll, resulting in the significant cost savings increase expected for FY 2007. This savings is slightly offset by the required amortization of the increase in the Unfunded Actuarial Accrued Liability which is amortized on the same basic FY 2034 amortization schedule for primary TRS UAAL. A single Great West contract discontinuation charge will also be incurred following the transfer of TDC assets to the WV IMB.
    It should be noted that the Actuarial Accrued Liability transferring from TDC to TRS is about 98% funded on the transfer date. Despite the increase in the dollar amount of the Unfunded Actuarial Liability in TRS, the high funded percentage of the TDC liabilities in TRS will increase the TRS funded percentage from 22.2% to about 28.9%.

Person submitting Fiscal Note:
Amy Langenbrunner
Email Address:
    The Bill covers a very complex merger of two very different types of retirement plans. Although the fiscal analysis indicates a current anticipated cost savings, the long term costs of TRS under changing economic assumptions will vary. The state of West Virginia provides a “guarantee” of TRS benefits not provided to TDC benefits under similar circumstances. TRS costs under the guarantee would be similar to current TDC cost levels if inflationary factors were reduced from the current expected investment return rate of 7.5% down to 6.0%, with a 1% reduction also being reflected in anticipated cost of living rate.
    Assets and liabilities shown assume TDC members merging into TRS will contribute 1.5% of their pay for each year of TDC service recognized under TRS. TRS will allow a Plan loan at 7.5% interest to allow amortization of the repayment. Those electing not to repay will have a reduction in their TRS benefits equal in value to the contribution not being paid. As a result, assets and liabilities would be reduced by identical amounts.
    The election is a one time election. 50% of all TDC members with an account balance must vote for the election to be valid. 50% of those voting must vote in the affirmative for the merger election to be successful. This election shall be binding on all TDC members. The Bill’s stated position that the State guarantee added to TRS benefits is equivalent in value to the TDC benefits is subject to judicial challenge. An adverse judicial ruling would invalidate the TDC merger for all TDC members. The TDC plan would then remain in operation as a closed system. TRS would continue to function as the open system for all new employees that have never participated in TDC.