Date Requested:March 18, 2005
Time Requested:04:22 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2005R499 Intro SB195
CBD Subject: Corrections Retirement System Act
FUND(S)
West Virginia Division of Corrections Retirement Fund
Sources of Revenue
General Fund,Other Fund
Legislation creates:
A New Program,A New Fund

Fiscal Note Summary

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

    The stated purpose of this bill is to create the West Virginia Division of Corrections Retirement System Act.
    
    According to our interpretation, passage of this bill would reduce General Revenue Fund collections by a minimal amount in the initial years of the program. However, as the number of eligible beneficiaries increases, the reduction to the General Revenue Fund could grow substantially. Additionally, the favored treatment of the potential beneficiaries in relation to other public employees may result in litigation where retired State employees will seek to be treated in the same manner.
    
    The bill includes provisions for active employees to contribute twelve percent of their gross income to the retirement fund. If the employee contributions are considered as deferred compensation for tax purposes, the higher contribution level, in comparison to other plans, will reduce the General Revenue Fund by roughly $150,000 per year, in addition to the reduction in the General Revenue Fund attributable to direct retirement benefits.
    
    There would be a minimal increase in administrative costs to the State Tax Department associated with the administration of the new income exclusion. However, the Consolidated Public Retirement Board may experience an increase in administrative costs associated with this bill.

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2005
Increase/Decrease
(use"-")
2006
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
3. Explanation of above estimates (including long-range effect):
    Passage of this bill would create the West Virginia Division of Corrections Retirement System Act.
    
    According to our interpretation, passage of this bill would reduce General Revenue Fund collections by a minimal amount in the initial years of the program. However, as the number of eligible beneficiaries increases, the reduction to the General Revenue Fund could grow substantially. Additionally, the favored treatment of the potential beneficiaries in relation to other public employees may result in litigation where retired State employees will seek to be treated in the same manner.
    
    The bill includes provisions for active employees to contribute twelve percent of their gross income to the retirement fund. If the employee contributions are considered as deferred compensation for tax purposes, the higher contribution level, in comparison to other plans, will reduce the General Revenue Fund by roughly $150,000 per year, in addition to the reduction in the General Revenue Fund attributable to direct retirement benefits.
    
    There would be a minimal increase in administrative costs to the State Tax Department associated with the administration of the new income exclusion. However, the Consolidated Public Retirement Board may experience an increase in administrative costs associated with this bill.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kpetry@tax.state.wv.us
    The stated purpose of this bill is to create the West Virginia Division of Corrections Retirement System Act.
    
    The bill, as written, provides that the term “salary” means the compensation of a member, excluding any overtime payments, while the term “final average salary” means the average of the highest annual compensation received for employment with the Division, including compensation paid for overtime service.
    
    Proposed W. Va. Code §7-14F-19 provides that an employee’s retirement allowance, the return of an employee’s contributions or any benefit received under the Act are exempt from any State tax. Employees participating in a retirement system are generally able to reduce their current gross income for tax purposes by the amount of contributions to the retirement plan with the provision that the income would be subject to tax when it was received back from the plan. The proposed exemption for the return of an employee’s contributions would allow employees to withdraw their contributions without any State tax liability either at the time the income was earned or at the deferred receipt period.